The housing market is booming and those not yet on the housing ladder are desperate to buy before the first rung is out of reach. The Government has taken massive steps to encourage home ownership. But are there some pitfalls as well as opportunities?
At Continuum we are looking at how you can get your foot on the housing ladder – and how these government initiatives can help.
Getting help from the government
The government provides several schemes to help first time buyers. They can make it easier to take that all important first step, but you need to be aware of the downsides.
Help to Buy
The Help to Buy equity loan scheme means that first-time buyers can purchase newly built homes from participating developers with just a 5% deposit and a Government funded equity loan of 20% – or 40% in London. You will need a repayment mortgage to cover the remaining cost.
This can cut what you pay initially, because the equity loan is interest free for the first 5 years.
However, you start to pay interest in year 6, and you need to beware; it could add as much as an extra £200 per month to your outgoings, and being interest only, payments will not reduce the amount you owe.
If you decide to sell you will need to repay your equity loan, and if the market value of your home rises, so does the amount you owe.
Planning to move on before the end of the five-year period might be shrewd. But there is a real risk of negative equity even in today’s rising market. The problem is that new build often carries a premium which can be as high as 15% and cannot be passed on with resale.
Under the Shared Ownership scheme, buyers get a mortgage to purchase a portion of a property and pay rent on the remaining share, which is owned by a housing association. The idea is that they can then purchase the remaining share in stages, a process called staircasing.
Mortgages can therefore be much smaller, but with current interest rates this can mean spending more in rent than on the mortgage.
What’s more, many people don’t staircase. The process is difficult and expensive, and many owners prefer to move on – although shared ownership properties can be hard to sell as buyers must fulfil affordability requirements. Shared ownership might help you onto the first rung of the ladder, but it could leave you stuck there.
Low deposit borrowing
A low deposit mortgage means borrowing more, but it can help you afford a first home faster, reducing the months of scrimping and saving that is usually required to provide the usual 15% or even 20%. Lenders withdrew low deposit mortgages during lockdown, fearing an uncertain future and not wanting to expose themselves to risk if house prices fell. In the March Budget, Chancellor Rishi Sunak announced plans for Government backed 95% mortgages. The move helped lenders regain their confidence and some are starting to bring 5% deposit mortgages to market already, outside of the scheme.
Getting expert help from Continuum
With a surging property market and prices heading ever higher, expert help is vital. If you are a first time buyer, or ready to make your next move, we at Continuum can provide the help you need. We can examine your financial circumstances and determine whether you should take advantage of the government schemes, or whether you should simply let us find you a mortgage.
Remember, if you go direct to a lender, they will try and find the mortgage that is suitable for you. But they can only find a solution from their own products. If your circumstances do not meet their criteria, they will not be able to help you.
As Independent Advisers we can search all the mortgage products on the market to help find the one that is suitable to meet your needs. This includes many mortgage products that are not advertised to the general public, and some that are particularly suitable for first time buyers.
It may be harder to get on the housing ladder now – but coming to Continuum might still make it possible.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Mortgage products, you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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