The Help to Buy conveyancing process is more complicated than a standard conveyancing procedure because of the additional contract you are taking out with the Government. Here is a rundown of the Help to Buy schemes that the Government currently runs and the effect this will have on the conveyancing process and fees…
Help to Buy Equity Loans
The Help to Buy: Equity Loan scheme is a government run scheme designed to help first time home buyers get on the property ladder with a 5% deposit. Here is how Help to Buy schemes work, how you qualify and the options available.
What is a Help to Buy Equity Loan?
This Help to Buy scheme is an offer of an equity loan from the government. The government lends first-time buyers and existing homeowners money to buy a new-build home. To fit the eligibility criteria, the purchase price must be no more than £600,000. The scheme allows you to borrow 20% of the purchase price interest-free for the first five years. However, to qualify, you must have saved at least a 5% deposit. If you intend to purchase a home in London, you can borrow up to 40% of the purchase price.
The scheme was originally set to end in 2021 but the Government has recently confirmed it will extend the Help to Buy equity loan scheme to 2023 though the extension will be restricted to first-time buyers buying new-build homes only. From 2021, there will be regional price caps which could reduce the overall price of homes that can be bought through the Scheme.
The scheme cannot be used to buy a second home or a property that you intend to rent out. You cannot use the scheme to purchase a home where a repayment only mortgage has been used to buy it and you can’t buy a property which exceeds the set price limits.
You will need to find a solicitor to help with your conveyancing and we would always recommend that you choose someone who is familiar with the equity loan scheme.
How do Help to Buy equity loans work?
- You will need to save at least a 5% deposit.
- The property must be a new-build flat or house.
- The government will lend you up to 20% (40% in London) of the agreed sale price.
- You will borrow the rest, up to 75% (60% in London) as a mortgage on a repayment basis.
- The equity loan must be repaid after 25 years
- It can be repaid earlier if you sell your home.
- Upon the sale/repayment you must repay the same percentage of the increase in price as the initial equity loan (if you took out an equity loan for 30% of what you paid for your home, you must pay back 30% of the proceeds from the future sale).
- You won’t pay any interest or fees on the loan for five years. In the sixth year, you will be charged 1.75% interest after which the fees will rise by inflation based on the Retail Prices Index (RPI) plus 1% each year.
- You will need the help of a Solicitor or Conveyancer to assist you in buying the property and to advise you on the details of the Help to Buy Equity Loan.
What conveyancing fees will I have to pay during the process?
You will have to pay the usual conveyancing legal fees, which is the cost of the work your solicitor carries out plus disbursements. These are things such as search reports, a land registration fee so that Land Registry can register your home upon completion and stamp duty. Be aware of all the costs before you begin
When using a Help to Buy equity loan, your solicitor/conveyancer will:
- Advise you and ensure that you sign the sale contract and the Help to Buy equity loan.
- Explain the legal implications of the equity loan and how your new home must be your only residence and what the consequences of a fraudulent application would be
- Check that your mortgage offer, property price and your available funds are consistent with the ATP. They must then request permission to exchange.
Help to Buy Isa
What Is A Help To Buy ISA?
A Help to Buy: ISA is a savings scheme where first time buyers can save up to £200 a month towards their first home. The government will then boost these savings by 25%. For every £100 you put into your Help to Buy ISA the government will add £25 on top meaning a £50 government bonus for every £200 saved and so on. The maximum government bonus available is £3,000 meaning for this you would have to put £12,000 in the ISA. The bonus is available for home purchases up to £450,000 in London and up to £250,000 outside London. Help to Buy ISAs are available from a range of banks, building societies and credit unions.
How do Help To Buy ISAs work?
- Help To Buy ISAs are available per buyer rather than per household. If you are planning to buy with your partner, you could receive a bonus of up to £6,000 towards your first home by both opening an ISA.
- Your conveyancer will apply using the standard bonus application process, but you must speak to your ISA manager and conveyancing solicitor as early as possible to inform them that you wish to claim a government bonus.
- You can save up to £200 a month into your Help to Buy: ISA.
- In your first month, you can deposit a lump sum of up to £1,200.
- The minimum government bonus is £400, meaning that you need to have saved at least £1,600 into your Help to Buy: ISA before you can claim your bonus.
- The maximum government bonus is £3,000. To receive that, you need to have saved £12,000.
- Bonus: when you are close to buying your first home, you will need to instruct your solicitor or conveyancer to apply for your government bonus.
- Once your solicitor or conveyancer receives the bonus, it will be added to the money you are putting towards your first home.
- The bonus must be included with the funds and consolidated at the completion of the property transaction.
- The bonus cannot be used for the deposit payable at the exchange of contracts. It is also not to be used to pay for solicitor’s, estate agent’s or any other costs associated with buying a home.
- Your solicitor or conveyancer must not charge you more than £50 + VAT to process your bonus application.
Claiming your Bonus
Your conveyancing solicitor will apply for your government bonus on your behalf. The bonus will be sent directly to your solicitor and will be included with the other funds included in the completion of the property transaction. Your conveyancing solicitor will then need a closing statement from your Help to Buy: ISA account. When the time comes to withdraw all of your funds be sure to close your account and get a closing statement from your ISA manager.
What is Shared Ownership?
If you are unable to afford the mortgage on a home, Help to Buy: Shared Ownership gives you the chance to buy a share of your home. You are able to buy between 25% and 75% of the home’s value and pay rent on the remaining share. You could buy bigger shares in the future when you can afford to.
With Help to Buy: Shared Ownership you can buy a new-build home or an existing one through resale programmes run by housing associations. You must take out a mortgage to pay for your share of the property or fund it with savings. Shared Ownership properties are always leasehold.
Military personnel are given priority over other groups through government funded shared ownership schemes. Councils with their own shared ownership home-building programmes may have specific priority groups of their own, based on local housing needs.
Who can buy a home through Help to Buy: Shared Ownership?
If you are in England, you can qualify for this scheme if:
- your household income is £80,000 a year or less outside London,
- your household income is £90,000 a year or less in London,
- you are a first-time buyer,
- you used to own a home but can’t afford to buy one now,
- you are an existing shared owner looking to move.
Is conveyancing different with Help to Buy Schemes?
In effect, the conveyancing process remains the same. However, there are several complexities involved in Help to Buy schemes as there are third parties to deal with and each have their own regulations and codes of conduct. Your solicitor will be liaising with the Government’s scheme administrators for example and dealing with multiple financial outlets at the same time. We advise that you consider instructing a conveyancer who is experienced in Government schemes to deal with your purchase. In addition to being familiar with the transactions they are dealing with, they can advise you on eligibility criteria as well as liaise with the mortgage lender to ensure your transaction goes smoothly.