By Damian Thompson, director of mortgages, Aldermore
The Help to Buy equity loan scheme supports those with a low deposit looking to reach the first rung of the housing ladder, by combining a 5 per cent deposit from the would-be buyer, a government loan of up to 20 per cent of the property value, which is interest-free for the first five years, and a 75 per cent loan-to-value mortgage. There is also a scheme for those looking to buy in London.
2. First-time buyers
Since the launch of the scheme on 1 April 2013, according to government figures, there have been 169,102 completions (12,205 properties in London) to 31 March 2018, of which 81 per cent are first-time buyers. The median purchase price of completions is £225,000, with semi-detached houses being most popular.
It is possible to remortgage with an equity loan in place, but it depends on the circumstance of the homeowner. There are a number of moving variables that will affect how easy it is to remortgage. This includes loan-to-value, how much the property value has risen or fallen, whether the homeowner has any equity to put in and how much income they receive. There are a number of products on the market for those looking to remortgage.
4. Selling up
This follows the same process as any other property sale; however, at the point of sale, the homeowner will have to repay the loan in full to the Home and Communities Agency. The amount that is paid back will be the same percentage (not amount) of the sale as the initial equity loan.
A different way for first-time buyers to get on the housing ladder is shared ownership. This allows people to buy a share of between 25 per cent and 75 per cent of a property. A mortgage will be paid on the share the homeowner owns, with a subsidised rent on the remainder being paid to the relevant housing association. Whilst shared ownership makes mortgages more accessible for those on a lower wage, homeowners still have to pay 100 per cent of the ground rent and service charge on a property. Homeowners do have the option to buy a greater share of the property in the future – a process called staircasing – but a stamp duty on the whole value of the property will have to be paid once the share equals or exceeds 80 per cent.