Helping hand for the property ladder with the government’s Help to Buy Scheme
Want to invest in a house but finding it hard to save up enough cash? A large number of people, in particular the 25-34 age group, are finding it difficult in the current economic climate to purchase their first property, and can you blame them! Job security is a stumbling block, the average UK salary is around £29k, house prices have massively increased in the past two decades and there’s a real shortage of properties when you consider the high demand. Essentially, it can be a daunting task, leaving many to turn to renting as the only viable option. With that in mind, the government has created the Help to Buy scheme to assist those who do not have enough savings to climb the property ladder. A nice incentive, but YouRent has done the research and considered all the factors to help you make an informed decision on whether it’s a worthwhile option….
Buying a house is a big decision, so all financial considerations need to be taken into account – both the positives and the negatives. If you’re renting or living with parents, there are limitations to what you can do and how you can make the property your own. Finding that dream home can be life-changing, just think of all the money you spend on rent or financially helping out your parents with the mortgage – if you invested it wisely in your own home that equity can be yours for the future, whether you’re starting your own family or moving into a new home with your partner. Since the UK is in the process of leaving the EU, the housing market is waiting to see the outcome, so prices are rising, but by small margins. It’s important to note that the Bank of England and a number of other financial institutions believe house prices could drop by as much as 30%, so now is a great time to invest in a home! As a landlord, owning properties can be a great investment to run as a small business on the side, or with multiple properties in your portfolio – just imagine the profit you can make with four properties, paying each off in 25 years and having enough cash for a blissful retirement.
There’s plenty of benefits to buying a property, but you’ll also have to consider a number of financial implications and hurdles before making the final decision. Buying a house isn’t just about putting down the deposit and away you go, you also need to think about the stamp duty costs (which increased to 3% for second homes purchased or buy-to-let but free for first-time buyers), how much of a deposit you can afford to put down (minimum is 5% but this means higher mortgage payments for longer) and maintenance/repair costs, considering it will be solely up to you as the owner to fix that burst water pipe. Other areas to consider is the amount of paperwork that you will need to fill out which can come at a fee (including surveys), financial advice such as a mortgage valuation fee from the bank, legal considerations such as using a solicitor or licensed conveyor, not to mention fully furnishing your property before moving in and estate agent fees if you decide to go down the traditional route – seriously there’s A LOT to consider so you need to think whether you can afford these up-front costs before even looking at deposits for the right house.
You have to think about why you wish to buy and whether you can manage the payments. The average 15-year fixed mortgage rate is 3.19 percent with an APR of 3.39 percent, with banks offering between 1.5 and 3% depending on your financial situation, so you have to consider whether you can cover these costs. A fixed-rate is a safer option, but there are other options out there, it just requires research and planning to make the best move for you. If you can wait a couple of years as a first-time buyer while living with parents or renting, this can give you more flexibility to offer a larger deposit further down the line. If your income, whether on your own or purchasing with a partner/friend/family member is relatively low (even combined), you might not be able to borrow enough to purchase the house you desire. Your house will need insurance, there will be council tax to pay and a number of utility bills, as well as personal expenses, so your personal situation will make all the difference what you can afford, both initially and long-term.
This is where the Help to Buy Scheme comes in. The government has created the following Help to Buy schemes; including Help to Buy ISA for first-time buyers, Help to Buy: Shared Ownership, London Help to Buy and Help to Buy: Equity Loan to help those in need to assist with the first steps towards your investment. For every £200 a month saved, the government adds £50, up to a maximum of £3,000, boosting your ISA savings. For example, the Help to Buy: ISA is a great first step for those who need financial help. With house prices increasing by £200,000 in 30 years (via Winkworth), no wonder this scheme was introduced. It’s available from a range of banks, building societies and credit unions and the accounts are available to each first-time buyer, not each household. This means that if you are planning to buy with your partner, for example, you could receive a government bonus of up to £6,000 towards your first home, so you will both be quids in!
The minimum government bonus is £400, meaning that you need to save at least £1,600 into your Help to Buy: ISA before you can claim your bonus. The maximum government bonus you can receive is £3,000 – to receive that, you need to have saved £12,000. When you are close to buying your first home, you will need to instruct your solicitor or conveyancer to apply for your government bonus. Once they receive the government bonus, it will be added to the money you are putting towards your first home (further details here – https://www.helptobuy.gov.uk). The government has provided this scheme for those intending to stay in the property, unless they have a solid reason to move out in the future i.e moving abroad for work. Therefore, you can not use the scheme and claim the bonus if you plan on renting the home out as a landlord.
So should you buy a home and is one of the government’s Help to Buy schemes the best avenue to pursue? That’s entirely dependent on your situation, but it could be an excellent way to save faster. Renting is the safer short-term solution and requires less up-front cash, so it’s a good way to build the necessary funds to plan ahead and while you do that, the ISA can give you that extra bonus to put towards your ideal property, shaped in your image, which is fantastic! The scheme is definitely worthwhile for those wishing to get on the property ladder, but not having the means or finances to make that first move. It can take years to build up enough financial clout to put down a deposit on a house, without all the extra financial considerations, meaning you need to weigh all the pro’s and con’s before making one of the biggest decisions in your life. YouRent wishes you the best of luck whatever you decide!