If you are finding it difficult to get onto the property ladder and struggling to save enough to put down as a deposit, it maybe be worth considering what help is out there
Generally, these products tend to be aimed at first time buyers, however, existing homeowners are able to utilise these products too as long as both types of buyers meet the current criteria.
Help to Buy and Lifetime ISA
Let’s kick start our guide with the ISA which is available for first time buyers only. The Help to Buy ISA allows you to place an initial deposit of £1,000 into the account along with your first month’s contribution of £200. You are only allowed to contribute £200 per month into this account until you reach £12,000 which is the maximum the government will apply the 25% top up to. This fund can only be applied for and drawn on by a solicitor when purchasing your first house giving you a total deposit of £15,000 which includes the governments £3,000 contribution.
The Lifetime ISA allows you to save a lot more money per month with a cap set at £4,000 a year until age 50. Should you save £4,000 for the full 32 years from age 18 to 50 you would be eligible for an incredible £32,000 bonus from the government. The important thing to remember with the Lifetime ISA is that the money has to be used for the purchase of your first property or kept in till age 60. If you decide to take the money out for any other reason before April 2021 you will be hit with a penalty of 20% which means you will be left with the money you put in the account in the first place with no bonus. After April 2021 the penalty goes up to 25% which means you will be left with less than you originally put in the account. To demonstrate the maths:
Pre April 2021
£1000 paid in
25% bonus of £250
Total of £1,250 in the account
20% penalty for withdrawal which equates to £250
You’re left with your original £1,000
Post April 2021
£1000 paid in
25% bonus of £250
Total of £1,250 in the account
25% penalty for withdrawal which equates to £312.50
You’re left with £937.50
Shared Ownership
Shared Ownership allows you to purchase a share of a property ranging from 25-75%. You then pay rent on the remaining equity of the property to the housing association or private developer who owns it. As time goes on, you are allowed to purchase more of a share in the property, which is termed staircasing, until you eventually own it in full. You can look for a mortgage yourself for the portion you are buying, however, some lenders do not offer shared ownership mortgages so it is always better to let a mortgage adviser do this for you, as they know who to go to and where you can get the best rates that suit your circumstances.
For more information check out our Top 5 Reasons To Use A Mortgage Adviser.
Stamp duty can be paid in 2 ways on shared ownership. You can pay the full amount upfront or pay it on just the proportion you are purchasing. If you choose the latter, any first-time buyer exemptions to stamp duty are not applicable and you will have to pay it each time you purchase a larger share of the property. Should you choose the first option you will still qualify for any first-time buyer exemption.
All information correct as of the time of writing