You may have heard of the Government’s affordable housing schemes Help and Buy and Shared Ownership – but what does an affordable housing scheme actually mean, and how can it help people step onto the property ladder?
House prices are high and according the Office of National Statistics people today can expect to pay on average 7.6 times their annual salary when purchasing a home in England and Wales.
High house prices mean it’s harder for first time buyers to get onto the property ladder - the cost of properties and monthly repayments are often too high to afford. Help to Buy and Shared Ownership are designed to help with this affordability.
Help to Buy:
Help to Buy involves an equity loan provided by the Government and therefore requires a small deposit and a lower mortgage amount compared to a standard mortgage.
How does it work?
With a standard mortgage, you could put down a 5% deposit and borrow the remaining amount from a mortgage lender. You would be borrowing 95% of the property’s value.
With Help to Buy, you need a 5% deposit but would receive an equity loan from the Government of up to 20% of the property value (or 40% in London), giving you a combined deposit of 25%. You would then only need to borrow 75% of the property value.
What does this mean for affordability?
Borrowing a smaller mortgage would mean that your monthly mortgage repayments would be lower and therefore more affordable.
What about the equity loan – how much does this cost?
The equity loan is interest free for the first five years. After that, you will pay a fee of 1.75%, rising annually by the increase (if any) in the Retail Price Index (RPI) plus 1%. (The RPI is a measure of inflation published monthly by the Office for National Statistics).
With Shared Ownership you can purchase a share of a property, rather than the full 100%.
How does it work?
This scheme offers buyers the option to buy between 25% and 75% of a property and pay rent on the remaining share. You can buy bigger shares of the property at a later stage if and when you can afford to.
How does this help with affordability?
Because you don’t need to buy the full amount of the home, you can get a smaller mortgage but still get onto the property ladder. E.g. on a property worth £200,000 you could purchase 25% of the property which would be a deposit of £5,000 and a mortgage of £45,000. This can help buyers who are finding it difficult to raise a deposit or afford the monthly repayments of a higher mortgage.
How much rent would I pay?
Exact rental figures will be provided when you view a suitable property, but it is also linked to the Retail Price Index. You need to pay this on top of your mortgage repayment but overall monthly payments are likely to be lower than if you were to purchase independently of the scheme.
You will need to speak to your local Help to Buy Agent (www.helptobuy.co.uk
) about purchasing a property via Help to Buy or Shared Ownership – not all properties are applicable for the schemes.
Free Guide on Help to Buy and Shared Ownership:
We provide a free, comprehensive guide to Help to Buy and Shared Ownership – you can download or request a free hard copy here
Help to Buy
Help to Buy – Teachers Building Society
Shared Ownership – Teachers Building Society