THE end of Help to Buy is a blow for many aspiring home buyers trying to get on the property ladder – but other schemes could plug the gap.
The government-backed equity loan finally ends on March 31 and has already closed to new applicants.
Anyone who feels they missed out and is grappling to save a deposit or afford a mortgage should look closer at some of the alternative initiatives designed to boost ownership.
Jane King, mortgage adviser at Ash-Ridge Private Finance, said: “All schemes have their advantages and disadvantages so it’s worth taking advice on all of them before choosing the most suitable one for you.”
Here are some of the schemes aiming to give first-time buyers a helping hand.
The Mortgage Guarantee Scheme
Buyers with a small deposit of five per cent can use the government’s mortgage guarantee scheme to get a 95 per cent loan to value (LTV) mortgage.
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The initiative was originally due to finish at the end of 2022 but has been extended by another year. You now have until December 31, 2023 to take advantage.
Under the scheme, the government covers some of a lender’s losses if a borrower defaults on the loan and the property is repossessed. The backing gives banks more confidence to offer loans to those with small deposits.
First-time buyers can use the scheme as well as home movers – but the property you want to buy must be below £600,000.
If you are unable to save a deposit needed to buy a home or can’t afford the mortgage payments, Shared Ownership could be worth a closer look.
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The government-backed scheme allows people to buy a portion of a property and pay rent to a landlord on the rest.
Buying a share of a property means the deposit and mortgage payments are smaller than if you were buying the whole lot. However, you will need to be able to afford both the rent and the mortgage repayments.
You can buy more shares of the home as when you are able to – a process known as staircasing – until you own the property outright.
Or if you want to move you can resell your share of the property.
For some Shared Ownership homes, you may have to show you have a job or links with the area where you want to buy.
The end of Help to Buy has prompted a flurry of private companies to offer a similar style equity loan. Even, OnLadder, Proportunity and Ahuaz are some of the new firms that have cropped up.
As with Help to Buy, these firms will loan you around 20 per cent of the purchase price to be used as a deposit on a property. Usually, you will also be need to contribute a deposit of at least five per cent.
An equity loan means the company takes a percentage stake in the home and share any price gains when it comes to sell.
If the home’s value has fallen, the loan provider will also share the losses.
Not all mortgage lenders accept so-called deposit boosters, so your choice of loans may be limited.
And unlike Help to Buy some of these loans also charge interest or may increase the percentage stake over time, which needs to be taken into consideration.
The First Homes Scheme
First-time buyers can bag a home with a discount of up to 50 per cent using this government scheme.
The home’s discount will stay with the property forever and you won’t be able to cash in on the saving when it comes to selling.
To access the scheme, you will need to have a deposit worth at least five per cent of the discounted purchase price and earn less than £80,000 a year or £90,000 in London.
Local councils may also add further rules such as a local connection or reserving the properties for key workers only.
First Homes is usually offered on a small number of properties within new developments, so you will need to look for local builders advertising the scheme and apply through them.
Guarantor and family deposit mortgages
Mortgage lenders are trying to boost home ownership by finding more ways to allow family members to support hopeful buyers.
For example, Barclays’ Family Springboard Mortgage allows buyers to get a home without saving a deposit at all when a family member or friend puts up savings worth 10 per cent of the purchase price. The money is returned to the helper after five years as long as the mortgage payments are kept up.
Generation Home is another innovative lender that allows family members to boost deposits either as a loan or a gift.
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And more lenders are offering deals known as Joint Borrower Sole Proprietor. Under these mortgages, the income of another person can be used to boost affordability. The additional applicant is liable for the mortgage, but they do not own the home.
Getting family help requires a large degree of trust and it is a good idea to work out a plan of what would happen if the buyer struggles to repay the mortgage.
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