The Government’s Help to Buy Mortgage Guarantee closed its doors at the end of 2016. The scheme ran from October 2013 and helped over 86,000 people to buy a home.
The scheme gave lenders the opportunity of purchasing a government guarantee on mortgages with a loan-to-value of up to 95%, allowing them to help borrowers who had a small deposit.
Although the scheme proved popular, first time buyers will be glad to know that there are plenty more helping hands available to get them onto the housing ladder.
The aim of the Help to Buy Mortgage Guarantee scheme was to give lenders the confidence to offer 95% mortgages once more. However, despite the scheme ending, there are still over 200 95% loan to value mortgages on offer, with average two-year fixed rates now below 4%. If borrowers are struggling to find a good rate on the high street, they should consider building societies and challenger banks.
Bank of Mum and Dad
An increasing number of products are designed to allow families to help children or grandchildren onto the housing ladder. Barclays Springboard Mortgage, for example, allows borrowing of up to 100% where a family member deposits 10% of the purchase price into a special account for 3 years. The money is returned after the 3 year period with interest, provided that the borrower doesn’t default.
Barclays also has a Family Affordability Plan that allows the parents’ income to be considered alongside the child’s when calculating affordability. While the parents’ names appear on the mortgage papers as jointly liable, they are not co-owners – so the stamp duty tax hike on second homes does not apply.
The Family Building Society also has several products that may be of interest. Like Barclays, they allow family members to deposit up to 20% of the purchase price by way of security. They also allow family members to secure the purchase on their own property, or offset the interest that the borrower pays using their savings.
Help to Buy Equity scheme
The Government’s Help to Buy Equity loan scheme is expected to continue until 2021. This allows buyers to borrow a percentage of the purchase price of a home interest-free for five years. Borrowers with a 5% deposit can borrow a further 20% (40% in London), allowing them to obtain a competitive 75% loan for the rest of the money. Only certain homes from participating developers are eligible.
Help to Buy Shared Ownership
For those earning less than £80,000 (£90,000 in the Capital) a shared ownership purchase may be a good option. Buyers can purchase between 25% and 75% of a property and pay rent on the share that they don’t own. Over time, they can increase their ownership (if they want to) up to 100%.
Increase your deposit
A larger deposit helps you to secure better rates – particularly if you can increase the amount you’ve saved up to 10%. You’ll also be regarded as a lower risk borrower so the criteria will be a little less stringent. The Help to Buy ISA is one way to boost your deposit – and the new LISA available from April 2017 offers even better bonuses, for first time buyers. Check out our 12 financial resolutions for the New Year, for more ways to boost your savings.
One of the biggest problems that first time buyers face is affordability – they are unable to get the loan they need based on their income. However, the maximum income multiples vary from one lender to the next and lenders do change these multiples from time to time – so it pays to shop around. Brokers can sometimes help match you with the right lender, particularly where you have particular considerations such as Self Employed income, benefits that you’d like to be considered or a smaller deposit. For those with a small deposits, the lending criteria may be stricter – so it’s worth checking your credit file to make sure there are no issues before you apply.
Get in touch with our property department if you would like advice on the various schemes available to help you purchase a home.