We look at the options to first-time buyers struggling to get on to the property ladder, including low-interest government support for lower-income families.
Are you struggling to buy your first home? You could be missing a huge opportunity to get on the housing ladder with help from government-backed affordable housing schemes. And you wouldn’t be alone.
Only 30 per cent of would-be first-time buyers are aware of state-subsidised schemes which can help them get on to the property ladder, according to the latest report from Halifax, but if you live in England and can’t afford to buy a flat or house, these deals could give you a leg up.
HomeBuy Direct
The HomeBuy Direct scheme could offer a household earning less than £60,000 a year a maximum loan of 30 per cent towards the purchase price of a new-build home.
Funded by the government and the house builder, the scheme is interest-free for five years and is open to key workers – such as nurses, teachers or police officers – and those who rent council or housing association homes, as well as first-time buyers.
The home's title will be in your name, which means you can sell it at any time and, because the value of the loan changes based on how much the property is worth, the amount you owe will rise and fall with its value. The government and the house builder will then get the same share of your home’s price when you sell it.
For example, if you bought a property worth £160,000 through HomeBuy Direct, you’d need to raise at least £112,000 yourself and borrow a further £48,000. If that property then increases in value to £170,000 and you decide to sell without repaying any of the loan, your share will then be worth £119,000 and the government and builder’s share will be worth £51,000.
You don’t need to repay the loan for 25 years if you stay in the house, but be warned - in the sixth year the fee is 1.75 per cent of the loan’s value, increasing each year by the Retail Price Index plus 1 per cent.
Shared Ownership
Alternatively, a shared ownership scheme is available to certain households earning less than £60,000 or unable to otherwise buy a home.
It allows you to buy between 25 and 75 per cent of your home and pay rent on the remaining share if you can’t afford to buy one on the open market. You’ll pay up to 3 per cent of the share’s value, and properties are always leasehold with a fixed ownership period, usually 99 years.
With the same £160,000 property, a 75 per cent share would cost £120,000 with, for example, a 15 per cent deposit at £18,000. A 25-year repayment mortgage on the remaining £102,000 at an interest rate of 5.79 per cent would cost £652 a month. The rent on the remaining 25 per cent would be £91.66 a month, giving a total monthly bill of £743.66.
But with the same deal on £142,000 – the property’s value minus your deposit – you’d have a monthly repayment of £907.30 to fork out by going it alone. And the other good news is that you will usually qualify for a mainstream mortgage for your part of the funding, with a broader and cheaper range of deals than you might otherwise be able to access.
Thousands of people are clearly missing a trick, says Stephen Noakes, commercial director for mortgages at Halifax.
"For those who think they are priced out of the market we would encourage them to consider an affordable housing scheme,” he says. “Once a portion of a home is purchased, most schemes will allow the owner to slowly increase the amount of the home they own - as and when they can afford it, providing valuable flexibility."
Visit Directgov for more information or to find your local HomeBuy agent and eligible properties.
