Half a million people have used the government’s Help To Buy so here’s what you need to know
It can be really hard to buy a home these days, especially if you don’t have anyone to help you with a deposit.
Studies suggest that home ownership among young adults has collapsed, with the Institute for Fiscal Studies showing that the chances of a young adult in a middle income owning a home in the UK has more than halved in the last 20 years.
The government solution? Help To Buy. Since 2013, almost half a million buyers did so with help from the government’s scheme, which includes a possible deposit top-up of £3,000.
So how does it work and, more importantly, could it help you? Here’s what you need to know about Help To Buy.
What is it?
Okay, good first question. Help To Buy is a government scheme designed to help first-time-buyers in particular get the keys to their own home.
There are two main options available.
Help To Buy equity loan
This option is designed to help people with only a 5% deposit get onto the property ladder.
You stump up 5% of the value of the home you want and the government lends you 20% of the property price, allowing you to get a much cheaper mortgage.
It’s open to first-time buyers and second steppers until April 2021. The government loan is interest-free for the first give years, which can massively reduce the cost of the debt as well as letting you get a better mortgage deal.
However, after five years you start paying interest on the government’s share. You can repay the loan when the house is sold or when you remortgage, or you may be able to pay it back sooner if you have saved a lump sum.
Help To Buy ISA
This is the ‘free money’ one so I know I’ve got your attention. If you’re a first-time buyer saving up a deposit then this could be a way to gain thousands of pounds in extra help.
You can open one any time up to December 2019 – you’re on a deadline, people – and for every £200 you save, the government will add £50, up to a maximum of £3,000 bonus.
They are also open to every first-time buyer not every household, meaning that if you’re saving with a friend or a partner then you could potentially bag £6,000 in support.
But there are limits. You can only benefit from this if you have never owned any share of any residential property, even if it was inherited.
The house or flat you buy with the help has to be under £250,000 (that rises to £450,000 in London).
You also can only save £200 a month, although you’re allowed to save a hefty £1,200 in your first month if you can afford to. That means it takes time to build up the full government bonus, if you want to.
What’s the catch?
If you’re one of the half a million buyers who have got your foot on the property ladder thanks to this state support then you probably think it’s pretty good.
However, Help To Buy has been criticised for subsidising house builders and actually pushing up the price of new homes.
One of the biggest home builders saw its annual profits rise to £1 billion last year and that’s attributed to how much it benefitted from the Help To Buy scheme.
Okay, is Help To Buy right for me?
If you are considering a Help To Buy equity loan then it’s really important to look at what the cost will be and to have a plan for repaying the government’s contribution.
Otherwise you may find yourself paying more than you had expected after the first five years.
The other consideration needs to be whether a newbuild home is right for you. You might be able to get more for your money with an older home, even without the government contribution.
While the Help To Buy ISA offers essentially free cash, albeit with some strings attached, there are still choices to be made.
The alternative to the Help To Buy ISA is the Lifetime ISA, which launched in 2017. It’s very similar in that it pays a 25% bonus in your savings but you can use the money to save for a first home or for retirement. It’s only an option for people under 40.
It’s worth looking carefully at both and deciding which is right for you.
Help To Buy can make a real difference but it’s really important to understand the pitfalls as well as the perks.