In 2013 the U.K government launched the Help to Buy: Shared Ownership scheme. This allows buyers to buy as little as 25% or as much as 75% of a home and pay rent on the rest.
The Help to Buy ISA 1
This pays first-time buyers a Government bonus. By way of example, if a first time buyer were to save £200 a month, the government would then add £50, up to a maximum of £3,000, thereby boosting their ISA savings of £12,000 to £15,000.
Help to Buy: Shared Ownership 2
For buyers not able to quite afford the mortgage on 100% of a home, the Help to Buy: Shared Ownership offers the chance to buy a share of the home, between 25% and 75% of the home’s value, and then to pay rent on the remaining share. It also provides the option of buyers buying larger shares as and when they can be afforded. Those eligible are:
- Households earning £80,000 a year or less outside of London, or £90,000 a year or less if in London
- First-time buyers, including those who used to own a home but now cannot afford to buy one, or existing shared owners looking to move.
The scheme allows buyers to buy a newly built home or an existing one through resale programmes from housing associations. Buyers need to take out a mortgage to pay for their share of the home’s purchase price, or fund this through your savings. It is worth noting that Shared Ownership properties are always leasehold.
Help to buy: equity loan – How does it work? 3
With the Help to Buy: Equity Loan, the Government lends buyers up to 20% of the cost of a newly built home, meaning that only a 5% cash deposit and a mortgage covering 75% is required to make up the rest. Loan fees on the 20% loan are not charged for the first five years of home ownership.
Help to Buy in London
To reflect the generally higher current property prices in London, from February 2016 the Government increased the upper limit for the equity loan it gives new home-buyers within Greater London from 20% to 40%.
Is the Help to Buy Scheme successful though?
Figures released by the Department for Communities and Local Government this year show that the scheme has been responsible for selling £17.7bn of properties, with over 100,000 people taking out loans under the scheme. 4
Jeremy Leaf, RICS Chairman, has mentioned that due to the scheme “buyers able to move quickly, with finance arrange, are becoming increasingly valued.” He has also stated that Help to Buy has been a major contributor to demand and that first-time buyers and developers could struggle as the scheme winds down, and he is of the opinion that the Government should consider extending it or consider a replacement so as to avoid any negative impacts on the market. 5
The original idea of the scheme was to encourage more supply of new housing, and this it has done by generating increased demand, however it has also served to increase house prices across the entire housing market at the same time. The figures released by the Department for Communities and Local Government this year show that the scheme has clearly benefitted both developers and buyers to some degree, though this has come at some expense to the market as a whole.
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