First time buyers have always been challenged to save enough money to afford a deposit on their first property. The group has been known to go to extremes in order to reach the first rung of the property ladder. Finding a friend’s sofa to sleep on for a time, staying put in the family home of mum and dad, and working more than one job are just a few of the options first time home buyers resort to in an effort to afford a deposit. For years, there have been government supported programmes available for the group of first timers.
Help to Buy, launched in 2013, is celebrating five years of assisting first time buyers onto the first rung of the property ladder. Through December of 2017, this government programme has assisted almost 160,000 first time buyers achieve a spot on the ladder. There are many houses on the market which qualify for Help to Buy. Inquiring about these houses is as simple as asking your estate agent.
Here’s how it works. First timers are provided up to 20% of the purchase price on a newly constructed home. The purchaser obtains a mortgage loan of 75% of the value of the house, and then makes up the other 5% with their own savings. This enables first timers to reach the property ladder and get a proper start in a market which is short on supply and needs a fresh stream of buyers to strengthen the future of the market.
There is a unique method of repayment for Help to Buy, but it has not stopped thousands from succeeding in obtaining their first house. Saving enough for a deposit is no easy task. The average price on a first time buyer home is £179,594.
The first five years of the 20% loan provided by the government is tax free. This is the fifth year of the loan term since the programme started and repayments begin this year. The initial monthly repayment amount is taxed at 1.75%.
If for example, the initial 20% loan totaled £50,000, the yearly repayment this year would amount to £875, or £72.92 per month. This seems like a small additional monthly payment in exchange for the ability to buy a home through the programme. But, this is only the first year of the increase in monthly mortgage repayments. Following this year, monthly payments increase again. The increase includes the rise in retail price index plus 1%, every year.
The initial repayment on the fifth anniversary year totals only £72.92 additional per month, which is a minor adjustment to the monthly repayment amount which is already being paid. However, within a few years after the fifth year following the purchase of the home, the new homeowner will be paying more than £100 additional per month. This is likely considered a major increase for first time buyers to tack on to the regular monthly payment each month and could cause a strain on the family budget, hence the reason for some opposition to the scheme.
In essence, Help to Buy makes it possible for first time home buyers to afford a home faster than the traditional method of supplying the lender with a 10% down payment and then moving forward with repayments.
The 20% which is provided by the government makes a significant difference in the amount of the overall mortgage loan. The mortgage loan with Help to Buy is therefore much smaller, making the Loan to Value amount smaller as well. This also means the first timer buyer will be able to obtain a much smaller mortgage along with a more competitive interest rate.
So, Help to Buy enables a first time home buyer to obtain a smaller mortgage with a better loan to value and lower interest rate, not to mention the additional luxury of added time before the five years comes to an end following the date of purchase.
Help to Buy is making dreams come true for a group of home purchasers challenged to save enough for a 10% deposit on a new home. It is also paving the way for the next generation of home owners increasing the overall success of the housing market.