If you've saved up a small deposit but you're finding it hard to get a mortgage, you may be able to get help through a Government-backed scheme. You could buy a share in a property through shared ownership or increase your deposit with a shared equity loan on a new build. If you're not familiar with either of these terms, hopefully our straightforward guide will help.
It may be an option if you can't get a big enough mortgage to buy a home outright. As the scheme name indicates, this is a shared ownership scheme where you part rent and part buy. You can buy 25% to 75% of a property and you'll pay rent on the rest.
These schemes are normally beneficial if you're keen and able to enter the property market, but are struggling to afford the full cost of purchasing your new home. Specialist schemes may be available for older persons or those with disabilities.
The properties available tend to be new build properties, renovated older properties or existing shared ownership properties and Housing Associations and some private developers offer these schemes. In England to be eligible your household income usually needs to be under £60,000 a year or if the property is in London, under £71,000 a year for 1 or 2 bedroom homes or under £85,000 for 3 or more bedroom homes. Scotland and Wales operate their own schemes and eligibility criteria. Generally there is no maximum income threshold, as in England, but your provider will assess your affordability criteria and eligibility.
It can be cheaper to buy a shared ownership property as the rent is usually capped. But unlike a rental property, you're responsible for maintaining your property and usually have a mortgage to pay too. If the property is leasehold, you may also have to pay a service charge for the upkeep of the building and communal areas.
With most shared ownership schemes, when and if you can afford to, you can buy a bigger share of the property or buy it outright. Buying a larger share of your property will reduce the amount of rent you pay but it's worth bearing in mind, that any additional share you buy will be based on the current market value of your home, not the price at which you first bought the original share.
The Help to Buy schemes supported in England, Scotland and Wales are an example of a shared equity scheme. A shared equity loan of up to 20% of the property value (up to 15% in Scotland, up to 20% in England and Wales or up to 40% in London) can provide you with money to add to your own deposit, at least 5%, when you buy a new build home. It's aimed at first time buyers and home movers who would otherwise only be able to get a mortgage at a higher interest rate.
These loans are available on new build properties with a value of £600,000 or less in England. Scotland and Wales operate their own schemes and have different maximum property values. The first step to getting a Help to Buy mortgage is to talk to your local Help to Buy Agent, who will check you are eligible and provide guidance and support.
With Help to Buy, you:
- need a deposit of at least 5% of the sale price
- apply for a repayment mortgage for the remainder of the purchase price
- apply for a Government loan of up to 15% in Scotland, 20% in England and Wales or, if the property is in London, up to 40% of the purchase price to make up the total purchase price
In England and Wales the government loan is interest free for the first 5 years after which you start paying back the interest at an initial rate of 1.75%. The government loan will be repayable when you sell your home or when your mortgage ends. In Scotland the government loan is interest free.
Think either of these are right for you? The Council of Mortgage Lenders offers independent information on the common schemes and buying a home in your area.