Help To Buy Will Be Changing In 2021
Getting on the property ladder is enough of a minefield without changes being made to the help available. Knowing which scheme on offer you qualify for or which can benefit youtube most can be hard to work out, so we have put together some information on the imminent changes to be made in the property sector over the coming months.
The Former Help To Buy Scheme.
One of the most popular schemes over recent years has been the government’s “Help to Buy equity loan” which has offered homebuyers a loan for up to 20% of the cost of their newly built home, meaning only a 5% cash deposit was needed with a 75% mortgage to make up the rest. The London Help to Buy scheme offered a loan for 40% of the purchase price, as well as a special Armed Forces Help to Buy scheme.
The original Help to Buy scheme was aimed at helping buyers who were struggling to save a deposit or who would struggle to buy in an expensive area, but has come under some criticism for being available to buyers who may not need it. Here are a few key points:
- The scheme applies to new build homes only costing less than £600,000 and the house must be the buyer’s only property.
- The loan is interest free for the first five years, interest is then charged following this period.
- You can pay back in a lump sum or in parts.
- The original scheme is not just for first-time buyers, any buyer is eligible so long as they are using it to buy their only home and they are not using part exchange.
- Buyers can still use the scheme so long as they legally complete by 31st March 2021 on a house built by 28th February 2021.
- There may be further changes to the dates as there are calls for the government to extend the deadline because of delays caused by coronavirus.
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What Is The 2021 Help To Buy Scheme?
As of April 2021, only first-time buyers will be able to use the scheme. The current plan is to end the scheme altogether by 2023. There is also a regional price cap to focus on helping those who need the scheme the most.
To qualify, the following criteria apply:
- You Must Be A First Time Buyer – you must never have owned a property in the UK or overseas. If you are buying as a couple, neither of you should have owned a property, in the UK or overseas.
- The Property Must Be A New Build –The builder must be registered with the Help to Buy Equity Scheme.
- You Need A Minimum 5% Deposit – You can put down more deposit if you wish, so long as your mortgage is not less than 25% of the purchase price.
Other Important Info:
- Equity Loans Are Between 5% And 20% (40% in London)
- Maximum Property Price Cap – there is a maximum property price cap depending on where you intend to live:
- London: £600,000
- South East: £437,600
- East of England: £407,400
- South West: £349,000
- East Midlands: £261,900
- West Midlands: £255,600
- Yorkshire and The Humber: £228,100
- North West: £224,400
- North East: £186,100
- No Interest Paid In The First 5 Years – There is however an administration charge of £1 per month.
- Interest starts in year 6 – Interest is calculated in the 6th year at 1.75%, thereafter interest rates go up each year in April by the Consumer Price Index (CPI), plus 2%. At year 7 the rate will be calculated at 1.75% (year 6 rate) + 0.08% (1.75% x (2.5% CPI + 2%) 1.83% and in year 1.83% (year 7 rate) + 0.08% (1.83% x (2.5% CPI + 2%) 1.91%. This will continue until the loan is repaid in full. This may be reasonable for the first 10 years. However, if you do not repay your loan in the first 10 years or before the end of your mortgage term, the equity loan could end up costing you more than a standard mortgage. This is especially true when coupled with the increase in house prices, the loan might cost you considerably more than simply taking a mortgage for the loan amount.
- More About Interest… – you only pay the interest on the loan and no capital is repaid each month like it would be with a repayment loan or mortgage.
- You Can Pay It Off At Any Time – However, any part payments need to be at least 10% of the value of the property at the time the loan is repaid. This could mean that you will need to obtain a surveyor’s valuation of the property if you intend to pay all or part of your loan without selling the property.
- When Must I Repay In Full? – the term of the loan is usually 25 years. The loan will come to an end at the end of the 25 year term or the end of the repayment term of your mortgage. The loan is also repaid if you sell your home or if you breach the terms of the loan agreement.
- How Are Repayments Calculated? The loan settlement amount is calculated based on house price increases and decreases, when to sell or repay the loan. So say you purchased your home for £200,000 and your Help to Buy Equity Loan was 20% or £40,0000 and your home valuation at sale was £300,000, your Help to Buy Equity loan repayment would be 20% of the value or £60,000. The same applies if the value of your home decreases.
- What About Mortgages? You will need a mortgage of at least 25% of the purchase price. The benefit of having a Help to Buy Loan as well as your deposit is that the lower the Loan to Value the better the interest rate. However, you may find that the mortgage lenders will charge a premium for mortgages where equity loans are being used.
Can I Speed Up The Buying Process?
A few things to conaider if you want to move house sooner rather than later:
Compare Conveyancing Solicitors: As soon as you have an offer accepted on a property you will want to have a conveyancer on board. You can compare conveyancing solicitors and compare solicitors fees easily to get the ball rolling. Our expert legal panel, made up of UK regulated solicitors and licensed conveyancers, can provide you with fast efficient conveyancing fees online to help you to make your home buying or selling a more straightforward process
Mortgage Offer: Make sure you have a mortgage offer in principle ready to go before you even start looking. If you are self-employed or a contractor, you may find securing your mortgage easier by using a mortgage broker who will advise you how to provide the necessary evidence of your income including tax returns that need to be signed off by a certified accountant.
Get Organised: Get all your paperwork organised early. Collect all your current utility bills, bank statements, payslips, credit card statements and any other credit agreements as these will all be needed. You will need to provide photo ID too so make sure that your passport or driving license is up to date.
Electoral Roll: Check you are registered to vote because lenders use this data in identity checks. 6. Boost your credit score to avoid delays in getting your mortgage.
Credit: Check your credit report and look out for errors as they can be corrected. Check your address is up to date on all active accounts or you will face delays. Close all unused credit cards or… conversely, a long-standing credit card with a good rating can boost mortgage applications.
Take Care On Your Application: Ensure you are consistent and precise with spelling of names, postcodes etc so every form is accurate. Many forms will be processed by a computer so there is little room for error.
Compare conveyancing solicitors today with no obligation to speed up your property purchase. Compare solicitors fees from our expert legal panel, made up of UK regulated solicitors and licensed conveyancers. They can provide you with a fast efficient fixed fee conveyancing fees online to help you to make your home buying or selling a more straightforward process