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# Home buying schemes supported by the Government

Homebuyers and first time buyers who are short of funds and may not be eligible for a normal mortgage, can find some hope in the various schemes run by the government. In this mortgage guide, we discuss the different Government schemes that are aimed at supporting homebuyers.

## Help to Buy: Equity loans

Help to Buy equity loans are available for first-time buyers as well as those who are buying newly-built properties.

Here are some key features of Help to Buy equity loans:

• The government will provide a loan of 20% of the property's purchase price.
• You need to have a deposit of at least 5% of the purchase price of the property.
• You will have to take a mortgage for the remaining 75% of the price.

Example 1: For a property worth £150,000, here's how the breakdown will look like.

ComponentPercentageAmount
Loan from the government20%£30,000
Deposit5%£7,500
Mortgage75%£112,500

The maximum purchase price of a property allowed under this scheme is £600,000 in England, £250,000 in Scotland, and £300,000 in Wales.

You can buy a home under this scheme only if it's for your own use. You cannot put the property on rent.

An advantage of Help to Buy equity loans is that you can get cheaper interest rates because you are taking a mortgage for only 75% of the property. Also, as you don't have to pay any interest on 20% of the loan for the first 6 years, this reduces your purchase cost.

### A few things to keep in mind regarding Help to Buy equity loans

#### Interest-free loan from the government up to 5 years

For the first 5 years, the government loan will be interest free. From the sixth year, you have to pay an interest of 1.75%. Subsequently, the interest rate will increase based on the retail price index.

#### Repayment of the government loan

Note the annual interest paid does not contribute towards the repayment of the government loan. The loan is repayable to the government either when you sell the property or when the mortgage term comes to an end. You can pay this loan in part or full, anytime you want. Whenever you repay the loan, the amount payable will depend on the price of the property at that time.

Example 2: Continuing with the above example where the property is worth £150,000 and the government loan is £30,000. If the property is sold for £250,000, you will have to repay £50,000 to the government (20% of £250,000) and not £30,000.

#### Government stake in the property

The government owns up to 20% of the price of your property. This means that even though you own the property, you will have to take the approval of Help to Buy agents at various stages, such as when you want to extend the property, or if you want to make any changes to the property.

## Help to Buy: Mortgage Guarantees

Under this scheme, the government provides a guarantee to the mortgage lender and not to the buyer of the property. The government assures the lenders to cover some of their losses if the borrower is not able to repay the mortgage.

As a buyer, you are only required to contribute a deposit of 5% of the property's purchase price. This scheme is available for both newly-built as well as older homes. You can use this scheme only with a repayment mortgage, and not an interest-only mortgage.

In order to be eligible for a help to buy mortgage guarantee, the home should meet the following criteria.

• The price of the home should not exceed £600,000
• It should be the only and primary home
• The home cannot be put on rent

Just like any other mortgage, the lender will assess your repayment ability before awarding a mortgage under this scheme. And you alone will be responsible for repaying the mortgage, just like any other mortgage.

This scheme is applicable only for newly-built properties. Unlike Help to Buy equity loans where the government has an equity in the property, in NewBuy the builder or the developer has a stake in the property.

Some key features of a NewBuy scheme are as follows:

• Buyer has to pay a deposit of only 5% of the property
• The price of the property should not exceed £500,000
• The home should be your primary and only home; you can't use the NewBuy scheme for a second home or a buy-to-let home
• The home should be built by a builder who is participating in the scheme
• The government guarantee means that if the borrower misses any repayments, the government will cover the losses of the builder/developer.
• As of December 2014, more than 80 builders were a part of the NewBuy scheme.
• Very few lenders participate in the NewBuy scheme, which means there are not many NewBuy mortgage products in the market.

## Shared Ownership

If a buyer doesn't have the resources to purchase a property outright, they can opt for shared ownership. Under a shared ownership, the homebuyer buys a 25 to 75% share of the property. The remaining portion is owned by a housing association, and the homebuyer has to pay a rent on this portion.

The following people are eligible for purchasing a home through shared ownership:

• Your annual household income is £60,000 or less
• You don't own a home (you can be a first-time buyer or someone who owned a home in the past)
• You are living on rent on a property owned by a council or housing association
• You have enough savings to cover 10% deposit of your share, as well as your moving costs, stamp duty, etc.

Also, you will have to find a mortgage lender who is willing to lend towards a shared ownership. Here's how a shared ownership will work like:

Example 1: Suppose a property is worth £150,000. If you are buying a 50% share, it works out to £75,000. The remaining £75,000 will be owned by the Housing Association, and your deposit will be £7,500 (10% of £75,000). So, you will require a mortgage of £62,500 (£75,000 less £7,500). And on the remaining share of £75,000, you will have to pay a subsidised rent. If the rent on the property is £150 (at subsidised rates) and you own 50% of the property, you will have to pay a rent of £75.

This scheme is ideal for those living in a property owned by a council or a housing association. Under the right to buy scheme, you can buy the property at a discount.

If you are a resident of England, Wales or Northern Ireland, you need to meet the following criteria to buy a council house:

• The property is your primary and only home
• The property is self-contained
• For at least five years, the property has had a public sector landlord, such as a council or a housing association or an NHS trust). It is acceptable if the 5 years were not consequent.

Some key features of a right to buy scheme are listed below.

• You can buy the property at a discount.
• If you sell the property within 5 years of purchase, you will have to repay some or all of the discount back to the government.

## Right to Acquire

This scheme is applicable to properties, which are built after 1997 or are transferred to the housing association post 1997. The maximum discount available under the Right to Acquire scheme is £16,000, b both in England and Wales.

Similar to Right to Buy, in order to purchase a home under Right to Acquire, you should have had a public sector landlord for at least five years. The public sector landlord can be any of the following: housing associations, councils, armed services, NHS trusts and foundation trust.

This scheme is also applicable for those living in council homes. Those who qualify for Right to Buy but don't have the money to purchase the home outright can get support under the Social HomeBuy scheme.

In order to qualify under the Social HomeBuy scheme, the homeowner should have lived in social housing for a minimum of 5 years. Also, their landlord should be a part of the Social HomeBuy scheme.

Under this scheme, you need to purchase a minimum 25% share in the property. You can pay a subsidised rent on the remaining portion of the property. As and when you can afford, you can increase your share in the property by paying the remaining amount. Note, however, that whenever you buy an additional share you will have to buy it at the prevailing market price.

If you are looking for a mortgage, we recommend you to try out our mortgage calculator. You will also find value in our How much can I borrow calculator and Stamp duty calculator.