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Help to Buy is Dead - What Now for First time Buyers?

 30th October 2016

Reaching the first rung of the housing ladder has never been more difficult. With money in short supply, house prices sky high and lenders offering less than generous terms, conditions are anything but straightforward for first time buyers.

To make matters even worse the Government’s Help to Buy scheme is being wound up at the end of the year. The scheme was effectively a Government guarantee to a lender that they would meet the difference between, for example, 80% and 95% of the house value, should the buyer default on the loan. The net effect was that banks and building societies would be prepared to lend, in this example, 95% a house value rather than 80%.

first time buyer

Government good news

The good news is that Government hasn’t backed away from first time buyers completely. Recognising that it is often the deposit that is the real barrier to getting on the housing ladder, government have maintained the Equity Loan Scheme. Under the ELS you can borrow up to 20% of the purchase price from HM Government with the result that commercial lenders will accept a 5% deposit (and a 75% loan). It is worth noting however that first time buyer mortgages may require a loan to value of as little as 60%-65%.

Savings aid

Needless to say house buying is something that requires careful, long term planning. As Open Property Group make a point of stressing, it also requires you to get your financial house in order right from the word go.

A striking example is the Help to Buy savings ISA. The Help to Buy ISA is a long-term savings vehicle aimed at allowed first time buyers to enjoy tax free saving as they build up a deposit amount. But the point is that it can take time to build up the necessary amount for a deposit.

bank sign

The Bank of Mum and Dad

The Bank of Mum and Dad can be invaluable in terms of helping out with the initial expense associated with buying a new home but that is not the only contribution they can make.

It is important to recognise that not all would-be buyers are stumped by the need to raise a deposit. For some (notably the self-employed) meeting the required income criteria is an equally damaging stumbling block.

In recognition of that need lenders are increasingly accepting so-called guarantor mortgages. Like any loan, the presence of a guarantor offers the lender the security of being able to call on an established, credit-worthy individual to meet payments on the loan if difficulties do arise. Typically, the guarantor is freed from their obligations once the loan has been repaid to the point where the lender is satisfied - usually around 80% of the property’s value.

Some parents use their children buying property as an opportunity to down-size and free up capital that they can then contribute to a child’s deposit. Buying and selling property can be time consuming and the longer it takes the more money is wasted on renting whilst a deposit is scraped together. Open Property Group buy houses for 100% cash and the money could be transferred within as little as 7 days. It’s a safe and secure avenue to consider when trying to help a loved one onto the property ladder.

As in all aspects of property ownership, it is essential to consult suitably qualified professional advice. When it comes to property the one thing no-one can afford is to get it wrong.

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