May 03

Need help buying a house? Here’s everything you should know

Reading Time: 5 minutes

It’s no secret that buying a house is a huge investment. With house prices continuing to soar, there are new headlines every day about first-time buyers struggling to save for a deposit, and existing homeowners being unable to afford a move into their second homes.

If you are one of the thousands of people concerned about your first or second step up the property ladder, you’ve probably come across the government’s Help to Buy scheme. Through equity loans, shared ownership arrangements and specialist ISAs, Help to Buy has already enabled thousands of people across the UK to own homes when they would otherwise be unable to afford to do so.

So, what are the key things you need to know about Help to Buy, and how else can you save money when buying your home?


Help to Buy: Equity Loan

Mortgage application form

The Help to Buy equity loan assists the purchase of a new-build home, by lending buyers up to 20% of the property’s value (or 40% in London). This means that the buyer can apply for a standard 75% mortgage and only need to pay a 5% deposit to secure their new home. To break it down, if you are looking at a new-build costing £200,000, you will need a mortgage of £150,000, the government will lend you £40,000 and you will need £10,000 in cash as a deposit.

With an equity loan, it’s essential to consider the loan repayments and applicable fees. You can pay back your loan at any time, but the minimum repayment value is 10% of your home’s market value. The entire loan must be paid back within 25 years or by the time you sell your home – whichever is first. There are no loan fees to pay for the first five years, however, in your sixth year, you will be charged a fee of 1.75% of the remaining loan value. This will increase each subsequent year, in line with the Retail Prices Index, plus 1%. These fees do not count towards repayment.


Help to Buy: Shared Ownership

Home exchanging hands

The shared ownership scheme is designed for buyers that cannot afford the mortgage on 100% of the property’s value, allowing them to buy between 25% and 75% of its value instead. They will pay rent on the remaining share (in addition to their mortgage repayments) and will have the opportunity to buy greater shares later down the line.

To be eligible, buyers must have a household income of £80,000 or less (£90,000 or less in London). They must also be first-time buyers, previous property owners who are now unable to afford a home or a current shared-owner looking to move out.

The property can be a new-build or an existing home made available for purchase through a housing association.


Help to Buy: ISA

Mortgage adviser talking to young couple

Aimed at first-time buyers, the Help to Buy ISA adds an extra 25% to your savings, up to the value of £3,000. Available from a range of banks and building societies, you can open your ISA with a lump sum of up to £1,200 and then pay up to £200 into the account every month thereafter. Once the balance reaches £1,600, you can withdraw your funds as part of your deposit payment and receive a bonus 25%.

So, if you can deposit the full £200 into your account each month, the government will give you an extra £50 every time you do. When you hit the minimum withdrawal amount of £1,600, you’ll be given £400 for free. If you manage to reach the cap of £12,000? The government will be giving you an additional £3,000.

It’s worth noting that ISAs are per person, not per household, so if you’re buying with a partner or friend and you’re both first-time buyers, you can get a boost of up to £6,000 for your deposit. Not bad, huh?


Extensive Repairs

Woman ripping wallpaper down

Many buyers budget for pre-purchase costs (like solicitors and estate agents), but are caught off-guard by urgent repairs once they move in. Failing to identify roof damage, timber decay or extensive damp in a property can result in thousands of pounds worth of unexpected remedial work, quickly turning a savvy investment into a money pit.

Avoid unpleasant surprises by arranging a pre-purchase property survey. Carried out by a professional surveyor, a report will detail any structural concerns with the property, allowing you to renegotiate the sale price with the vendor or rethink your purchase. Yes, it might cost more in the short-term, but it could save you big time.


Leasehold or Freehold?

If you’re buying a flat, check whether you will own the freehold or leasehold title. Leaseholders will need to pay the property freeholder ground rent – anything from £10 to £300 a year. The exact amount and how it should be paid will be detailed in the lease contract.

On top of that, you need to take into account the fact that a lease is a diminishing asset and, once the lease expires, ownership of the flat reverts back to the freeholder. To prevent this from happening, you will need to apply for a lease extension. The cost of a lease extension depends on the property and how many years are left on the lease, with fewer remaining years being more expensive. Ballpark figures are anywhere from £2,000 to £150,000, so it’s wise to use a lease extension calculator for a more accurate estimate before you move in.


New-build Premiums

New-Build Homes

Just like buying a new car, purchasing a brand-new house comes with a price premium that vanishes from its value as soon as you get the keys. If you love the idea of a new-build but can’t afford to get straight into negative equity then a nearly-new home can be a happy compromise. Look for house sales on new-build estates that have been completed in the last few years and you’re likely to find a modern home in a near-perfect condition, without the inflated price tag.


Stamp Duty

People signing contracts

Stamp duty is payable on properties over a certain value. Since 2017, first-time buyers are not charged stamp duty on the first £300,000 of their home (providing it is costing them less than £500,000), while experienced buyers will need to pay 2% stamp duty on properties valued between £125,000 and £250,000, and 5% on homes between £250,000 and £500,000. Factor these figures in before increasing your offer!


Whether you’re a first-time buyer or an existing homeowner, investing in a new property is a big commitment, emotionally and financially. Make sure you take the time to weigh up your options, take professional advice and don’t over-stretch your budget. Happy hunting!

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