Help to Buy

This was launched in April 2013 and was intended to run until 31st March 2016, although this has been extended. It is especially designed towards helping  people to buy a home, which must be their main residence and only property. This is particularly helpful to first time buyers wishing to purchase their first property. This is being done in conjunction with UK national house builders and can only be used to purchase new build properties. The scheme is administered in the South West  by the government funded agency “Help to Buy South West”, they can easily be found on the internet at www.helptobuysw.org.uk , the telephone is 0300 100 002. Their site has a dedicated page for Help to buy, this includes the application form that you will need to use to apply to join the scheme and it will explain how the scheme works and answer many of the questions you may have.

The scheme has the benefit of the purchaser/s only requiring to put down a minimum deposit of 5% of the purchase price of the property,  the government will then provide an additional equity loan of up to a further 20% of the purchase price. This will mean that a minimum deposit of 25% of the purchase price can be provided which in turn allows the purchaser to qualify for a low mortgage rate based on the low size of the mortgage. It is important to remember the 20% equity loan is secured as a second charge on the property and that conditions will apply. This equity loan is interest free for the first  five years after which a nominal (subsidised) rate of interest will be charged. You will also need to qualify on affordability grounds with Help To Buy South West and with your chosen mortgage lender. So acceptance by Help to Buy South West will be needed and an Agreement in Principle acceptance will be needed from a mortgage lender. When you are looking at new build property’s the sales staff of the developer will also be able to help with advice. They will try to point you in the direction of there own approved mortgage advisers, but please remember these people will be working hand in glove with the developer and you will not receive unbiased advice.  Remember you are only buying the developers house and that  you should be seeking unbiased independent  mortgage and legal advice

Please find below a question and answer form that I hope will make this whole process clearer for you:
Government Help to Buy Scheme – A Brief Guide for Buyers:

Full details of the Government’s ‘Help to Buy Scheme’ have now been published. The Scheme is now live. It provides loans of up to 20% of the price of a new build home to bridge the gap between what a buyer can borrow from a mortgage lender together with what they can afford as a deposit and the price.  A detailed guide has been produced by the Homes and Communities Agency (‘Agency’) www.homesandcommunities.co.uk/help-to-buy  This is a brief and easy to understand FAQ summary.

Please note that law is a complex subject and you should not rely on this article without professional advice on the facts of your case.

Q  What type of property can I buy?
A   A new build property sold by a registered housebuilder. Most major developers as well as some smaller ones will be registered. If you are interested in a particular development simply ask the developer if they are registered.  The Scheme does not apply to second-hand properties. There is a different scheme which will apply to those properties and which starts on the 1 January 2014.

Q  Do I have to be a first-time buyer?
A  No but the property you want to buy must be used as your main residence and it cannot for example be sublet or be a second home. When you apply for a loan under the scheme you will need to sign a declaration of your intention in this respect. A false declaration could result in a criminal prosecution.

Q  Can I keep my existing property and let it out?
A  No. You will again need to sign a declaration to this effect. If you have an existing property you will be expected to sell it.

Q  How much can I borrow?
A  Up to 20% of the price with the property having a maximum price of £600,000. In other words the maximum loan is £120,000.

Q  Must I take out a standard mortgage at the same time?
A  Yes. You must obtain a first mortgage from a qualifying lender. This will include most banks and building societies. There is no minimum amount need to borrow but the amount you borrow and the cash you put in must add up to at least 80% of the price. Also if you could afford more than 90% of the price you will not receive Help to Buy assistance. The Scheme is aimed at people who cannot afford to buy a property without financial assistance above the amount they can borrow from a bank or building society.

Q  If I can afford to pay a larger deposit can I still borrow the full 20%?
A  Strictly speaking no. The Local HomeBuy Agent (see below) will assess your finances and if they think you can put down more they are likely to require you to do so. They will also assess whether they think you can and should be borrowing more from your main lender.

Q  How much will the loan cost me?
A  During the first five years the loan is interest-free. After that period there is an annual fee of 1.75% of the amount of the loan outstanding. This increases each year by 1% plus any increase in the RPI. Therefore the loan becomes more expensive to service the longer it remains unpaid. You can pay the fees in one lump sum annually or by monthly instalments. There is also a potential cost when the loan is repaid as this is an equity loan – see below

Q  What do you mean by an equity loan?
A  The Government takes a share of any increase in in the value in the property when you sell it or repay the loan. The amount you repay is the same percentage of the sale price (if you sell the property) or the market value of the property (if you want to repay all or part of the loan early) as the percentage when you bought the property. Therefore if the value the property increases so does the amount you have to repay but conversely if it decreases the amount you have to repay will be lower. Example : You buy a property for £200,000 with a Help to Buy loan of £40,000 i.e. 20% of the price. If you want to sell in 5 years’ time and the property is worth say £220,000 to repay the loan you would have to pay back £44,000 so the loan would have cost you £4,000.

Q  How do I apply for a loan?
A When you have found a new build property you would like to buy, the developer will put you in touch with a Local HomeBuy Agent and you will be given a form to complete. The HomeBuy Agent will assess your application including your financial position and your suitability for a loan. You will also have to see an independent financial adviser who will also look at your financial position and advise you of the risks and cost to you.

Q  What happens if my application is approved?
A The Local HomeBuy Agent will issue what is called an ‘is authority to proceed’. The Agency intends that this should be issued within 4 working days of receiving the completed and signed information form. This seems optimistic and there could be a delay if further information is required. The authority is valid for three months during which time you would need to exchange contracts for the purchase of the property. The Local HomeBuy Agent will work with your solicitor on the legal details and on completion will release the loan to the solicitor who has to check that your main mortgage offer, the property price and your available funds are consistent with the authority to proceed.

Q  How is the loan secured?
A  The Agency takes a second mortgage over the property which ranks behind the mortgage of your main lender. Your solicitor registers this mortgage at the land registry at the same time as the main mortgage is registered. The mortgage contains various restrictions and obligations with regard to what you can or must do with the property. After completion of the purchase, the Help to Buy loan is managed on behalf of the agency by someone called the Post Sales HomeBuy Agent.

Q  Can I pay off all or part of the loan at any time and before I sell the property?
A  Yes, at any time with a minimum of 10% of the market value of the property. It is necessary for an independent valuer to provide a valuation of the property and you must pay for any administrative costs. If you are considering making an early repayment you should contact the post sales home by agent.

Q  Can I re-mortgage the property without paying off the help to buy loan?
A  Yes, with the approval of the Post Sales HomeBuy Agent and subject to certain conditions. As with any remortgage there will be costs involved.

Q  Can I take out additional loans against the property e.g. for home improvements?
A  In theory this might be possible but again would need permission from the Agency which may be difficult to get as the Government takes the view that any spare cash should be used to pay off the Home Buy loan.

Q  What happens when I want to sell the property?
A  You will need to contact the Post Sales HomeBuy Agent as the Agency’s mortgage will only be released with its permission. Their main concern will be to see that you are selling the property at the correct market value so be necessary for there to be an independent valuation. This is intended to prevent a contrived sale at undervalue which might deprive the Agency/Government of part of its entitlement

Q  Are there any other restrictions on what I can do with the property?
A  The mortgage will contain various obligations and restrictions stop these should be explained to you by the Local HomeBuy Agent and/or by your solicitor. These include a restriction on making alterations to the property without the permission of the Agency. Also you cannot e.g. make transfer of equity on divorce without such permission. In essence anything major you want to do with regard to the property is likely to require the permission of the Agency through the Post Sales HomeBuy Agent.

For further information concerning the Help to Buy schemes and to arrange your Decision in Principle, please contact us  – 24/7

Forces Help to Buy

Regular armed forces personnel can benefit from a £200 million scheme to help them get on the property ladder. The Forces Help to Buy scheme enables servicemen and servicewomen to borrow up to 50% of their salary, interest free, to buy their first home or move to another property on assignment or as their families needs change.

The pilot scheme, which will run for 3 years, aims to address the low rate of home ownership in the armed forces. However, this isn’t about forcing people out of service accommodation. That option will still be there for armed forces personnel who want to continue to use it.

Who can have use the scheme?

All regular personnel who:

  • have completed the pre-requisite length of service
  • have more than 6 months left to serve at the time they apply
  • meet the right medical categories

However, it is recognised that there may be instances where exceptions to the standard rules may be justifiable, especially where there are extenuating medical and personal circumstances.

How much can be borrowed under the scheme?

This scheme allows service personnel to borrow up to 50% of their annual salary, to a maximum of £25,000. This can be used towards a deposit and other costs such as solicitor’s and estate agent’s fees.

How to get it?

Servicemen and servicewomen can apply for the loan online through the Joint Personnel Administration system and can seek advice on their application through their Chain of Command and personnel agency.

A Forces Help to Buy scheme which relates to those leaving the armed forces under the Tranche 4 redundancy programme will be launched in June 2014.

If you are considering buying a home, but have not done so before, you may wish to read some general information on how to buy one and understand better how the process works.

Find out about buying a home

Below are links to useful information:

Other government schemes

Specific for those in the armed forces

Tax implications

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