Buying a home: Six lifelines for first-time buyers as the homebuyer deadline approaches

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its Halloween promises to be short on treats for first-time buyers in London – the Buyer’s Aid Scheme, which has given buyers a head start on the housing ladder since 2013, ends and the date deadline to reserve a house is october 31.

To date, some 350,000 households have used the program to buy a new home with just a 5% down payment. A government equity loan of up to 40% of the total property value and a conventional mortgage cover the rest.

There are no signs the government is planning to replace its flagship scheme with an alternative for first-time buyers – although things are changing rapidly in Westminster at the moment.

But as Help to Buy enters its final countdown, there are other options for first-time buyers looking to get on the property ladder.

Buy up to £625,000

The stamp duty changes unveiled in the Kwasi Kwarteng mini budget and which came into effect last Friday will have the biggest impact on the buying power of first-time buyers in London. The new lower threshold at which first-time buyers will start paying tax has been raised from £300,000 to £425,000, saving them £6,250.

Meanwhile, the price cap at which a property is eligible for the tax reduction has been increased from £500,000 to £625,000, creating a maximum potential saving of £11,250. Non-first-time buyers will save a maximum of £2,500.

High house prices in London and the South East mean new groups will benefit buyers in the capital and suburban ring the most. It remains to be seen how quickly the tax saving is eaten up by rising property values ​​and steadily rising interest rates, but in the immediate term the tax cut could add a few thousand pounds to your deposit savings.

Small deposit, larger mortgages

At the start of the pandemic, the number of 95% mortgages on offer fell off a cliff. But now, says Ray Boulger, senior technical director at independent mortgage brokers John Charcol, they’re back and that’s good news for buyers with small deposits but big incomes.

Although the idea of ​​borrowing huge sums can be alarming, especially in the current climate of rising interest rates, Boulger believes that bricks and mortar are a safe bet for the medium to long term.

“Obviously the risk is that the property will lose value,” he said. “But if you spend roughly the same amount [on mortgage repayments] as you would spend on rent, you are not paid. And you will have paid off part of the mortgage by the time you want to sell, so the downside equity risks are low.

Although the idea of ​​borrowing huge sums can be alarming, brick and mortar is still a safe bet

The biggest risks, Boulger said, are job loss or a relationship breakdown that could force a property to be sold before prices rise enough to at least cover your costs, so think carefully about safety. of your life.

In the 1990s, banks routinely offered buyers a loan several times their annual salary to buy a home.

Today, most banks lend up to a maximum of 4.49 times your household income for a mortgage. That’s not massive help in London, where the average house price is £535,000 and the average salary just over £55,000, according to Halifax – an average earner would need to borrow 10 times their salary to buy a typical house.

If you need a bit more, then Boulger suggests looking at Kensington’s Flexi Fixed for Term product (kensingtonmortgages.co.uk). This product allows you to borrow six times your income over a 30-year term, at an interest rate of just over 4%.

You will have to pay a fee if you want to remortgage, but not if you sell the property, so this could be a good option.

The other option for buyers is to spread mortgages over 25 years – some products are spread over 40 years. This means paying more interest over the life of the mortgage, but monthly repayments will be lower, which could help banks calculate how much mortgage you can afford. “And it’s not like you’re going to stay there for 40 years and pay all that interest,” Boulger points out.

LeAnn and Gustavo Ferry, here with dog Myko, used the condominium to buy a flat near Battersea Power Station

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Shared ownership

Normally managed by housing associations, co-ownership works by allowing you to buy a share of a property (usually between 25 and 75%). This means that your mortgage and deposit requirements are much lower than if you bought the whole house. The association owns the part of the property that you do not buy and you pay them monthly rent for the use of it. You will also have to pay the full service fee.

It’s worth considering because you stay in the property for as long as you want, do what you want with it, and have the flexibility to increase your share over time. And when you sell, you get a share of the profits.

Moving into our house was a dream and the condominium allowed us to buy in an amazing location

LeAnn and Gustavo Ferry used the condominium to buy a two-bedroom apartment at Windsor Apartments (windsorapartments-sw11.co.uk) located between Battersea Park and Battersea Power Station, and its new Northern line underground station. They moved in last December with their dog Myko.

The couple opted to buy a 25% share and dipped into their savings to put down a 15% deposit.

The development’s two-bedroom apartments have a total market value of £845,000, so a 25% share would cost £211,250. This would mean putting down a deposit of just over £10,000. In addition to mortgage payments, buyers should expect rent of £665pcm and a service charge of just over 200pcm.

“Moving into our new home was an absolute dream and the condo program allowed us to buy into this amazing place,” says LeAnn, an office manager.

To learn more about co-ownership opportunities, visit: sharetobuy.com and check out real estate portals.

First houses

Lower than Help to Buy, the government-approved First Homes scheme allows developers to offer 30-50% discounts to first-time buyers with household incomes below £90,000 (in London; elsewhere the limit is £80,000). Local councils have the power to limit programs to give priority to key workers, people on low incomes or people already living in the area.

Homes can only be resold to another first-time buyer, who will receive the same percentage discount, reducing buyer demand and therefore your profit potential.

The price caps aren’t generous – eligibility is limited to properties costing up to £250,000 in England or £420,000 in London.

But it does mean a first-time buyer could effectively pay between £200,000 and £280,000 for a £400,000 property, lowering their deposit requirements and the amount of their mortgage payments.

The scheme only launched last summer and so far the range of participating developments is limited – nothing is on offer in London itself. But with the end of Purchase Assistance, that is likely to change, and the choice of lenders offering First Homes mortgages will also improve.

Lucy Ellis, associate director of JLL’s residential development team in London, said the scheme had proven “hugely popular” in the Garrison Point development in Chatham, Kent. “In recent bookings, we’ve seen more buyers using the First Homes initiative than buying assistance, although both are available,” she said.

Full prices at Garrison Point start at £210,000 for a one-bedroom apartment, with discounts of up to 30% available, bringing that price down to £147,000.

Not everyone is a fan of the First Homes concept. Councils may or may not participate and Camden Council has already turned its back on First Homes developments, saying there is a more urgent need for affordable rental properties. Homeless charity Shelter agrees. It calculates that “only the richest 28% of private rental households” will be able to afford to use the first houses. Everyone else will be absent.

For more information on how First Homes works, see: gov.uk/first-homes-scheme

Private companies

Tembo launched the Income Booster Program, which allows buyers to include up to four people on their mortgage, allowing family members to apply for a mortgage with them. By adding the income of the co-applicants, we increase the borrowing power of the buyer (tembomoney.com)

Then there’s Wayhome, which describes itself as a “gradual homeownership” program. Similar to condominiums, you buy the proportion of the property that you can afford. Wayhome’s financial partners buy the rest, so there is no need for a mortgage. You then rent out the part of the property that you don’t own from Wayhome and can increase your share over time (wayhome.co.uk).

Proportionality (proportionunit.com) promises to boost your buying budget by up to £150,000 by giving buyers who have a 5% deposit a 10-25% equity loan to bridge the gap between the home they want and the money they can raise. Unlike purchase assistance, buyers have to pay interest on the Proportunity loan from day one, but the program includes resale as well as new homes, meaning you could end up spending less.

Even, which is an offshoot of online estate agent Nested, is also offering buyers equity loans of up to £100,000 to boost their deposit if they want to buy a resale property. When they come to sell, however, they must share any product (joineven.com).

Most of these projects are still in their infancy. And it’s crucial to read the fine print, especially interest rates, rent levels and profit distribution, because no one offers help out of sheer human kindness.

Deposit release

Homebuilders have come to rely on purchase assistance to move their properties; according to Savills research, approximately one in three new homes are sold using the program.

In an attempt to ease the pain of its liquidation, a consortium of some of the UK’s biggest builders have come up with their own alternative, Deposit Unlock.

The program is based on the premise that banks have traditionally been reluctant to grant 95% mortgages on new homes on the grounds that, like new cars, they lose value the second they are no longer new.

The Deposit Unlock Program aims to address this problem by compensating loans, protecting lenders from any potential loss.

By contrast, only a few lenders have signed up for the program, and it’s only available on select lots from participating homebuilders, but if it proves popular, it has some growth potential.

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