help to buy guide 2020
reason for the help to buy guide 2020
To help those who are planning to purchase a New Build Home in 2020. We hope this Guide provides you with all the knowledge and confidence you need. So when you meet with Developers in 2020, you understand what the full process is going to be. And there aren’t any nasty surprises along the way.
help to buy guide 2020 – scheme introduction
Help to buy Guide 2020: The Help to Buy Scheme was brought in to help First Time Buyers looking to purchase a new-build property. Under the scheme First Time Buyers can get an extra 20% (40% in London) as a government loan, which is interest free for five years. This means Buyers only need a Mortgage for 75% (55% in London) Loan to Value. With a 5% deposit coming from their own savings or a gifted deposit.
The key benefit of this being they will be eligible for a much cheaper Mortgage Product, as they will have a 25% deposit instead of a 5% Deposit. And they may be able to purchase a more expensive property than they otherwise may have been able to afford.
the importance of affordability
Buying a home, for many, will be the biggest financial decision they make in life. Both your income and outgoings will make a difference to the mortgage products that meet your requirements. The EU Mortgage Credit Directive of 2015 introduced stricter lending criteria which led to mortgage lenders having to take greater steps to check affordability – including on Remortgages.
These rules require your lender to check you can afford your repayments now and in the future. To do this, they will need information about your income and outgoings. You will have to tell them if you expect your income and outgoings to change in a way that means you’ll have less to spend on your mortgage payments. You will also need to give your mortgage lender evidence of your income.
what are the different help to buy schemes
England Help to buy
Equity Loans are available to first time buyers as well as homeowners looking to move. The home you want to buy must be a new build costing up to £600,000. The Government will lend you up to 20% of the cost of the home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest.
help to buy scotland
Affordable New Build Scheme is available to first-time buyers and existing homeowners. You’ll be expected to pay a minimum of 85% (including your deposit and mortgage) of the home’s purchase price and the Scottish Government will hold the remaining % share under a shared equity agreement.
help to buy wales
The scheme provides a shared equity loan to buyers of new-build homes with a maximum purchase price of £300,000. The Government will lend you up to 20% of the cost of the home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest.
help to buy london
Available to first time buyers as well as homeowners. The home you want to buy must be newly built with a price tag of up to £600,000. The Government will lend you up to 40% of the cost of the home, so you’ll only need a 5% cash deposit and a 55% mortgage to make up the rest.
other help to buy schemes – help to buy guide 202o
help to buy: shared ownership
available to first-time buyers, those who used to own a home but can’t afford to buy one now, or existing shared owners looking to move. The scheme gives you the chance to buy a share of between 25% and 75% of the home’s value, and you then pay rent on the remaining share. Later on, you could buy bigger shares when you can afford to.
Forces help to buy
allows service personnel who are looking to move to borrow up to 50% of their annual salary, to a maximum of £25,000. This can be used towards a deposit and other costs such as solicitor’s fees.
All regular service personnel are eligible who; have completed the pre-requisite length of service, have more than 6 months left to serve and meet the right medical categories.
what is the full process of buying through the help to buy scheme
1. Mortgage in Principle – Speak to a whole of Market Mortgage Broker who will obtain you a Mortgage in Principle. This will confirm what you are able to borrow and therefore what property you can afford to purchase. The Lender will also complete a Credit Check on you at this step.
2. Choose a Solicitor – decide whether you want a local Solicitor you can physically go and visit or if you are happy completing everything via email and phone. Once decided ask friends/Family, Mortgage Broker or Developer for a recommendation. Check out their reviews online before you choose one. Don’t instruct the Solicitor until after stage 3.
3. Reserve a property – find the new build property you want to purchase and put down a reservation fee. This will reserve your new property and get it withdrawn from the open market whilst you get your Mortgage in place.
At this stage see if the New Build Developer can cover any of the costs or add in any extras. For example; Turf/Decking in the back garden, Free upgrade to the Kitchen. Or cover solicitor and/or Stamp Duty Costs. The above are not included as standard, but can usually be negotiated into the deal to get you to put down your reservation there and then.
Side note; Don’t be pushed into speaking with their Mortgage Broker. They cannot insist you use their Advisor. If you have a Mortgage in Principle in place already, you certainly shouldn’t be speaking to any other Mortgage Brokers. Completing a Mortgage in Principle unnecessarily, twice, can damage your Credit Rating. Tell your Mortgage Advisor, if they are being pushy.
4. Full Mortgage Application – you’re Mortgage Advisor (example of when one recommend here) will complete your Full Mortgage Application. At this stage your Advisor will submit all documentation to the lender such as Payslips, Bank Statements and Identification. They will also go and visit the devilment and site and complete a Valuation on the property.
5. Mortgage Offer – once your Mortgage Application, Documents and Valuation are approved. The Mortgage Lender will issue your Formal Mortgage Offer. This is the lender formally agreeing to lend you the Mortgage you require to complete the purchase.
6. Exchange of Contracts: simply put, you and the Developers will each have a contract outlining the details of the sale. You will both sign this and exchange the contracts, legally binding each other to complete the Sale/Purchase. Developers will often push for you to exchange contracts quite a bit before completion, which is when your Home is ready for you to move into. The reason for this is, Developers want to ensure the Sale is going to go through. By getting you to Exchange as soon as possible, this ensure this happens. The downside to this is, it can be many months from when you Exchange to when you complete. As you will usually exchange before the property has been built. At Exchange of Contracts, you will pay a deposit of usually 5-10% of the property purchase price.
7. Completion: Congratulations, you’re now a homeowner
costs involved in help to buy
It’s easy to underestimate the costs involved when buying a property. Many people underestimate the costs involved when buying a property. Here’s a summary of the main costs you could incur.
Reservation Fee: Most new build Developers will require you to Reserve the property you want to purchase. This will usually cost between £250-£500. This will take the property off the market whilst you obtain your Mortgage.
Valuation fee: Usually 0-£200. Lenders may ask you to pay the valuation fee. The type of valuation you choose will depend on factors such as the age and condition of the property.
Application/Arrangement fee: Always fee free options, generally 0-£999. This is the costs your lender will charge you for arranging your mortgage. Some lenders will allow the fee to be added to your mortgage, but this means you will be charged interest on it over the term of the mortgage.
Legal costs and fees: Around £800-£1,300 The fees charged by a solicitor include the charge for conveyancing (the transfer of ownership of land), and the costs of legal registrations and miscellaneous costs (known as disbursements) such as Local Search fees and Land Registry fees. Some lenders may offer to finance some or all of the legal costs as an incentive.
Higher lending charge: If the amount you wish to borrow is greater than a certain proportion of the property’s value (typically 75%), you may incur a higher lending charge. However, the lender usually pays this.
Mortgage Advice Fee: Your Mortgage Advisor may charge you a fee. This should be made clear from the outset and will be dependent on the overall complexity of your case and the size of the Mortgage you need.
In England and Northern Ireland, you can be liable to pay Stamp Duty Land Tax when you buy a residential property or a piece of land. In Scotland you will pay Land and Buildings Transaction Tax and in Wales you will pay Land Transaction Tax. If you’re a first-time-buyer in England or Northern Ireland, you will pay no Stamp Duty on properties worth up to £300,000.
positives of purchasing a new build under the help to buy scheme
- New – Brand new Sparkly Home with optional mod cons
- Energy Efficient – Generally more energy efficient therefore better for the environment and utility bills for yourself
- Own Stamp -You get to choose the Design of the Kitchen, Bathroom, flooring and outside space looks. And whether you choose the standard options or upgrades.
- Warranty – You will get a Certificate or Warranty (NHBC is the most common), that will cover your home for certain repairs for up to 10 years
- Help to Buy Equity Loan should reduce the initial costs of your Mortgage, as most lenders will consider it as part of your deposit. Larger deposit equals cheaper Mortgage overall.
- Builder/Developer incentives – Some Developers will be able to add extra things into the sale, such as paying Solicitor Fees or Stamp Duty. And/or provide you with upgrades to the property free of charge. Always negotiate with the Developer and see what they can add on. Be calm and don’t show them you’ve fallen in love with the property. There much more likely to add things on, if they feel it will help them to secure the sale.
cons of purchasing a new build under the help to buy scheme
- Space – There will generally be less space in a New Build than there would be in a traditionally built home. As developers look to cram in as many homes as they can on a site. Consider whether you’ll have enough space for storage and parking (usually be given one designated parking space) and whether you could get a larger traditionally built home for the same price or less.
- Little negotiation on price – New builds are usually priced at a premium to the properties true market value. And there will often be no negotiation in price.
- Leasehold costs – If you are purchasing a home or a flat and it is leasehold (i.e. you own the rights to the property for a set number of years). Make sure the Leasehold length is in excess of 120 years, ideally 999 years long.
- Service Charges – Some Developers charge an excessive ongoing monthly Service fee. This pays for the maintenance around grounds. For example, for £100 per month someone mowing the communal Lawn area every now and then.
- Upgrades – Although you get to pick what goes into your new home. A lot of things will be classified as upgrades, so will come at an extra cost. For example, certain work surfaces and cabinets in the Kitchen and Turf in the back Garden, will not come as standard. You should ask what is and isn’t included.
- Quality – Many developers have come under criticism when it comes to quality of the finished job and dealing with Complaints. Builders are often under pressure to complete work to tight time frames and/or on a budget, which can impact quality.
- Complaints – When Homeowners have valid claims under warranty. There have been complaints that it takes months if not longer for repairs to be actioned.
- Other Services – They may try to push you into using their other services such as Solicitors or Mortgage Broker. Remember, they cannot force you to use any of their additional services. So don’t let them bully you into doing so.
protecting your investment
buildings & contents insurance
All lenders require you to fully insure the property for the total cost of rebuilding it. Buildings insurance covers your home and it’s fixtures and fittings.
Contents insurance protects your household goods and personal property.
If you die unexpectedly, a Life Insurance policy will pay out a cash sum to your family. Mortgage Protection is a type of Term Assurance where the amount of cover decreases over the term of the policy, tying in with the outstanding amount on a repayment mortgage
Critical illness cover
This insurance pays out a lump sum if you’re diagnosed with a specified critical illness such as cancer, stroke or heart attack.
You can use the cash payout to clear your mortgage, pay for medical treatment or anything else you choose.
This pays you an income if you’re unable to work for a long time because of illness or injury. It can pay out until you return to work, the policy ends or in the event of your death. Policies usually have a waiting period before the benefit becomes payable. The longer the waiting period, the lower the monthly premium.
our mortgage brokers
We work with a variety of Mortgage Brokers which each specialise in different Mortgage Advice areas. When you get in touch, simply select the reason why you’re getting in touch i.e. First time buyer, Bad Credit, Remortgage etc. And we will match you to the Mortgage Broker which Specialises in your circumstances.
Get in touch for a free non-obligatory conversation with one of our Specialist Mortgage Advisors for further information on how they can help you.
get in touch for more information
Whether you’re a first time buyer or simply looking to Remortgage. Get in touch with us today, so we can put you in touch with a Mortgage Advisor which Specialises in your case.