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First Time Buyer UK: Own Outright vs. Help to Buy vs. Shared Ownership
Purchasing your first home in the UK can be a daunting task, especially given the array of schemes and options available to first-time buyers. Understanding the differences between owning a property outright, the Help to Buy scheme, and Shared Ownership is crucial in making an informed decision.
Owning Outright
Owning a property outright means purchasing it in full, either with savings or a mortgage loan that you will pay back over time. This option gives you full control over your property, with no ongoing payments beyond the initial purchase price and related expenses, like stamp duty or legal fees. While it provides ownership freedom, it also requires significant financial resources. A substantial deposit is typically expected by mortgage lenders, usually around 5-20% of the property price. Owning outright can be challenging for first-time buyers, especially in high-demand areas where property prices are steep.
Help to Buy
The Help to Buy scheme is a government initiative aimed at assisting first-time buyers. It allows you to purchase a new-build home with just a 5% deposit. Under this scheme, the government provides an equity loan of up to 20% (40% in London) of the property value. This means you only need to secure a mortgage for 75% of the purchase price. The equity loan is interest-free for the first five years. However, it's essential to consider that you will need to repay the loan within 25 years or when you sell the property, whichever comes first, and its value is linked to the market value of your home.
Shared Ownership
Shared Ownership is another government-backed scheme that enables you to purchase a share (usually between 25% and 75%) of a property while paying rent on the remaining share to a housing association. This option requires a smaller deposit compared to buying outright and involves lower mortgage repayments due to purchasing just a portion of the home. Over time, you can "staircase" by buying additional shares, increasing your ownership to 100%. Shared Ownership can be an affordable route for those unable to afford full ownership immediately, though it's crucial to factor in potential rent increases and the additional costs of purchasing further shares.
In conclusion, each option - owning outright, Help to Buy, and Shared Ownership - presents unique advantages and challenges. As a first-time buyer in the UK, it is vital to assess your financial situation, long-term goals, and the specific advantages and risks of each scheme before deciding on the best path to homeownership. Consulting with a financial advisor or mortgage broker can also provide personalized guidance based on your circumstances.
Frequently Asked Questions
What is the difference between buying outright and using Help to Buy?
Buying outright means purchasing a property with your own funds or a traditional mortgage without any assistance. Help to Buy is a government scheme that provides an equity loan to boost your deposit, making it easier to get a mortgage and buy a new build home.
How does the Help to Buy equity loan work?
The Help to Buy equity loan allows you to borrow up to 20% (40% in London) of the purchase price of a new build home. You only need a 5% deposit and a 75% mortgage for the rest. The loan is interest-free for the first five years.
What is shared ownership?
Shared ownership is a scheme that allows you to buy a share of a property and pay rent on the remaining share. You can purchase additional shares over time, a process known as staircasing, until you own the property outright.
Who is eligible for Help to Buy in the UK?
Eligible buyers must be first-time buyers purchasing a new-build property valued at less than the regional price cap. Additionally, you must not own any other property at the time of purchase.
Can I use Help to Buy for an existing property?
No, Help to Buy is only available for the purchase of new build homes.
What are the advantages of shared ownership?
Shared ownership can make it easier to get onto the property ladder with a smaller deposit and mortgage. It also allows you to gradually increase your ownership stake over time while paying reduced rent.
Are there any drawbacks to using shared ownership?
Potential drawbacks include paying both rent and mortgage, being responsible for 100% of maintenance costs even if you own a smaller share, and potential complications or fees when selling the property.
What happens if I sell my home with a Help to Buy loan?
When you sell your home, you'll need to repay the Help to Buy loan as a percentage of the sale price. If property values have increased, your repayment amount will also be higher.
How is staircasing in shared ownership beneficial?
Staircasing allows you to buy more shares of your home over time, reducing the rent you pay and increasing your equity in the property.
Can I rent out my Help to Buy or shared ownership home?
Typically, Help to Buy properties cannot be rented out unless you pay off the loan or receive permission from the housing provider. Shared ownership properties often have restrictions on subletting.
What are the costs involved in shared ownership?
Costs include rent on the unsold equity, service charges, and ground rent, in addition to the usual home buying costs like mortgage repayments, deposit, and legal fees.
What deposit do I need for Help to Buy?
You need at least a 5% deposit of the property's purchase price to use the Help to Buy scheme.
Are Help to Buy and shared ownership schemes available across the UK?
Yes, these schemes are available across the UK, but specific terms and availability can vary by country (England, Scotland, Wales, and Northern Ireland), so it's important to check local guidelines.
What happens if I can't afford repayments on my Help to Buy loan after five years?
After five years, you'll start paying interest on the Help to Buy loan. If you struggle with repayments, it's important to seek financial advice and contact your provider to explore options.
How does the property value cap affect Help to Buy eligibility?
The property value cap varies by region and sets a maximum price for properties eligible under Help to Buy. This ensures the scheme helps first-time buyers purchase affordable homes within their area.
Useful Links
Useful links from: RIGHT TO BUY MORTGAGE - LET ME SAVE YOU TIME AND MONEY
- Shelter - Right to Buy Shelter provides comprehensive information on the Right to Buy scheme, including guidance on eligibility, purchasing your council home, and the implications of buying. The charity aims to support those experiencing housing difficulties.
- NHS Credit Union - Mortgages The NHS Credit Union offers financial services for NHS employees, including mortgage options. They provide advice on the Right to Buy scheme and can help NHS staff find suitable mortgage deals.
- Money Advice Service - Help with Buying a Council Home The Money Advice Service, a free and impartial service backed by the government, provides advice on buying your council home. They offer tools and tips to navigate the Right to Buy scheme and manage finances effectively.
- Citizens Advice - Buying a Council or Housing Association Home Citizens Advice offers detailed guidance on Right to Buy, explaining how to exercise your right to purchase your home from the council or housing association. They provide advice on minimizing costs and understanding the financial commitments involved.
Useful links from: Getting the maximum mortgage in the UK
- NHS Mortgage Advice - L&C L&C provides specialist advice for NHS staff on getting the most suitable mortgage options, highlighting any exclusive deals and benefits for NHS employees.
- NHS Staff Benefits - Mortgage Saving Options NHS Discount Offers details exclusive mortgage deals and discounts available to NHS staff, which can help maximize borrowing capacity.
- Shelter UK - Mortgage Advice Shelter UK provides guidance on understanding mortgages, with resources available for those needing assistance from charities based in the UK.
- Citizens Advice - Mortgage Guide Citizens Advice offers comprehensive resources on mortgage options and related financial advice in the UK, accessible to NHS employees and the general public.
Useful links from: How much can I borrow for a mortgage UK - getting the Maximum Mortgage
- NHS Credit Union - Mortgage Advice The NHS Credit Union offers financial guidance specifically for NHS employees, including advice on mortgages and how much you might be able to borrow.
- Turn2us - Mortgage Calculators and Guidance Turn2us is a national charity that provides financial support and information, including mortgage calculators and advice on how much you can borrow in the UK.
- Shelter - Mortgage Advice Shelter provides detailed information about mortgages, including a guide on how much you can borrow and managing mortgage repayments in the UK.
- Money Advice Service - How Much Can You Borrow? The Money Advice Service offers free and impartial advice on money matters, including comprehensive resources on determining how much you can borrow for a mortgage.
Useful links from: Using 100% of your Second Income for a Mortgage Application
- NHS Home Ownership Schemes The NHS Business Services Authority provides information on home ownership schemes available to NHS staff, which can help with understanding how NHS-employed applicants can apply their full income towards a mortgage.
- Shelter - Affordable Housing Advice Shelter offers advice and information on affordable housing, including how to approach mortgage applications and making the most of your income.
- Citizen's Advice - Buying a Home Citizen's Advice provides comprehensive guides on buying a home and applying for a mortgage, which can help individuals utilizing their full income including any secondary income.
- Turn2us - Benefits Calculator Turn2us offers resources for maximizing your income and budgeting, which is beneficial when planning to apply 100% of your second income towards mortgage applications.
Useful links from: Mortgage Overpayment and Flexible Features Explained
- Money Advice Service The Money Advice Service provides guidance on mortgage payments, including the impacts and benefits of overpayment on your mortgage.
- Citizens Advice Citizens Advice offers information about making mortgage overpayments, potential savings on interest, and understanding flexible mortgage features.
- StepChange Debt Charity StepChange provides advice on managing mortgage payments, including overpaying and understanding your options with flexible mortgages.
- NHS Credit Union - Housing Advice The NHS Credit Union offers tailored financial advice to NHS employees, including insights on mortgages, overpayments, and flexible mortgage options.
Useful links from: Should you Pay down your Residential Mortgage?
- Money Advice Service - Should I Pay Off My Mortgage Early? The Money Advice Service provides information on the potential benefits and considerations when thinking about paying off your mortgage early.
- Citizens Advice - Mortgages Citizens Advice offers comprehensive guidance on mortgages, including whether paying down your mortgage is a suitable financial decision.
- StepChange - Managing Your Mortgage StepChange, a UK debt charity, provides advice on managing your mortgage, including considerations for paying it down early.
Useful links from: Turned down for a mortgage? Find out why and what to do
- Money Advice Service - Why mortgages are declined The Money Advice Service provides information on common reasons why mortgage applications get declined and steps you can take to improve your chances in the future.
- Citizens Advice - Problems getting a mortgage Citizens Advice offers guidance on dealing with mortgage problems, including advice on what to do if you’ve been refused a mortgage.
- StepChange - Mortgage refusal advice StepChange provides insights into why a mortgage application might have been refused and what you can do to address this issue.
- UK Finance - Understanding mortgage applications UK Finance offers a guide to understanding the mortgage application process, reasons for denial, and what steps to take next.
Useful links from: Turned down for a mortgage? Find out why and what to do
- NHS - Money and mental health The NHS provides guidance on how financial stress can affect your mental health and offers advice on what to do if you are struggling with money-related stress.
- StepChange - Mortgage debt help StepChange is a UK charity that provides free debt advice and solutions. They offer specific guidance on dealing with mortgage rejections and financial struggles.
- Mind - Money and mental health Mind is a UK mental health charity offering support and advice on managing financial difficulties and their impact on mental health.
- Citizens Advice - Help with your mortgage Citizens Advice provides free, confidential information on financial matters, including handling mortgage rejections and problems.
Useful links from: Selecting a Mortgage Broker - how they differ and what to watch out for
- Money Advice Service The Money Advice Service provides essential information on how to choose a mortgage broker, highlighting the key differences between brokers and advising on what to look for in their services.
- Citizens Advice - Getting a Mortgage Citizens Advice offers guidance on getting a mortgage and the role of a mortgage broker. They provide tips and warnings on selecting suitable brokers and understanding their fees and services.
- Which? - Choosing the Right Mortgage Broker Which? provides an insightful guide into choosing the right mortgage broker, exploring their differences and offering advice on what pitfalls to avoid during the selection process.
- Shelter - Mortgages and Mortgage Brokers Shelter offers advice on dealing with mortgages, including information on choosing a mortgage broker within the UK housing context. It is a useful resource for understanding the financial implications and options available.
Useful links from: Mortgage on Inherited Property - How we can help you with the finance
- NHS Money Advice Service The NHS Money Advice Service offers free and impartial advice about mortgages, including on inherited properties. They provide guidance on managing your finances related to property and other financial matters.
- Turn2Us Turn2Us is a UK-based charity that helps people in financial need gain access to welfare benefits, charitable grants, and support services. They have resources on managing inherited property and potential financial assistance.
- National Debtline National Debtline provides free and confidential debt advice to people living in England, Wales, and Scotland. They have resources on handling debts associated with inherited properties, including mortgages.
- StepChange Debt Charity StepChange Debt Charity offers free debt advice and solutions. They provide support on various financial challenges, including dealing with mortgages on inherited property, to help improve personal financial situations.
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- Videos shown by Youtube after a video has completed, have NOT been reviewed by ERGSY.
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- You may need to turn these on, and choose your preferred language.
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- If closed captions (CC) are available, settings will be visible on the bottom right of the video player.
- To turn on Captions, click settings .
- To turn off Captions, click settings again.