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Opening of a new purchase assistance system for first-time buyers: how does it work?

By on March 23, 2021 0

First-time buyers in England can apply for the next iteration of the Help to Buy crowdlending scheme from today.

Buyers who book homes now will be able to move in on April 1, when the program officially kicks off.

Here, which one? explains why buying assistance is changing and whether the new rules will be good news for first-time buyers.

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What is shopping assistance?

The government launched the Help to Buy equity loan program in April 2013. It enabled first buyers and movers in England to buy new houses up to £600,000 with a 5% down payment.

Buyers could benefit from a 20% equity loan from the government (40% in London) and obtain a mortgage for the remaining 75%. The loan was granted interest-free for the first five years.

By June this year, 278,639 homes had been purchased using equity loans, with 82% of purchases being made by first-time buyers.

What changes with the purchase aid?

From April 1, purchase assistance will only be available to first-time buyers and regional price caps will be introduced, limiting how much developers can charge for homes sold under the scheme.

The price caps were set at 1.5 times the average first-time purchase price in each region when the program was first announced in fall 2018. The caps are as follows:

From today, first-time buyers can apply for properties sold under the new scheme. Those who book will be able to move in when the program officially opens on April 1. The new version of Shopping Help will work until March 31, 2023.

Why is purchase assistance changing?

The purchase assistance bonus

The purchase aid has been popular with first-time buyers, but developers have been accused of inflating the cost of new homes, leading the government to impose price caps.

Exclusive Who? to research earlier this year, it was found that one in seven homes purchased using purchase assistance were resold at a loss, despite the significant rise in average home prices over the same period. This amounted to over 5,000 homes in declining value purchase assistance.

help bad people

The decision to limit the program to first-time buyers comes after criticism that many people who used Help to Buy could have afforded a home on the open market and therefore did not need a loan. 20% from the government.

The most recent government data shows around 13,000 people with an annual household income of over £100,000 have used Help to Buy to date.

Will developers use the new schema?

Price caps are being introduced to limit the cost of home purchase assistance, but the lower margins on offer may discourage developers, resulting in fewer properties being sold under the scheme.

The government has faced questions over its decision to base price caps on house prices in 2018 rather than the start date of the scheme.

A report by estate agency Hamptons International last year claimed ceilings were too low in the north of England. He said that could mean developers might not be able to build in certain areas or will have to build apartments rather than houses.
Row of new houses

How to apply for shopping assistance

The government says first-time buyers considering applying for purchase assistance must ensure they meet the following criteria:

  • You have a deposit of at least 5% of the value of the property
  • You can afford to pay a fee of up to £500 to reserve the property
  • You can afford to pay other moving costs, such as stamp duty, mortgage fees, and legal fees.

Buyers should follow these four steps to apply:

1. Find accommodation and apply

Find a suitable purchase assistance property. You can search for home buying assistance online or through developers, who will display the program logo on their ads.

Once you have visited the show home and chosen your property, you will need to pay a fee (capped at £500) to reserve it. This will be refunded if you are not approved for an equity loan.

You will now need to complete a Property Information Form to apply. You will need to prove details such as your income, your bond and the mortgage you are proposing to take out. Do not apply for a formal mortgage yet.

2. Obtain “permission to proceed”

The purchase assistance agent will ensure that you are eligible for the program and assess your financial capacity. If your request is approved, you will receive an authorization to prosecute (ATP), which will be valid for three months.

You can now officially apply for your mortgage and nominate your carrier.

3. Mortgage offer and exchange

Your transfer agent will fill out all the legal paperwork including checking the property sale contract and making sure your mortgage offer meets the rules and set up a date to exchange with the agent for help. ‘purchase.

On exchange of contracts, you will be legally bound to buy the house on an agreed date (the completion date). You will need to ensure that this date is before your mortgage offer expires. At this point, you pay your 5% deposit.

Once you’ve exchanged contracts, you can visit your new home to confirm any last-minute details or changes.

4. Completion

Upon completion, your mortgage lender will release the remaining funds, allowing you to purchase the home. The government will now pay your equity loan to the developer and you will legally own the property.

Alternatives to purchase assistance

Shopping assistance has been hugely popular with first-time buyers over the past seven years, but it’s by no means the only option available.

When Assessing If The Diet Is Right For You, Consider These Alternatives

Mortgage at 90%

It’s virtually impossible to get a mortgage with a 5% down payment at the moment, but a steady stream of banks is now relaunch their offers at 90%.

If you’re not set on buying a new home and can save a 10% down payment, you may find that a traditional mortgage will give you more options and cost you less in the long run.

Shared ownership

Shared ownership The schemes allow you to buy a share of a property (sometimes as little as 25%) from a housing association and pay rent on the rest.

These programs can be a way to scale expensive city markets, but the combined cost of your mortgage, rent, and service charges can be very high.

Concerns have also been raised about some blocks containing condominium properties having security issues with their sheathing.

Guarantor mortgages

Guarantor mortgages come in all shapes and sizes, but most often require parents to use their savings or possessions as collateral against their child’s mortgage.

UK purchase support programs

Help buying in Scotland

Help to Buy Scotland also enables first-time buyers and movers to buy a new build property with a 5% down payment and a 15% equity loan. The program includes properties priced up to £200,000 and will run until at least March 2022.

The biggest contrast to the English system is that equity loans in Scotland are granted interest-free for their full term, rather than just for the first five years.

Shopping assistance in Wales

Help to Buy Wales offers a 20% equity loan to first-time buyers and movers. As with England and Scotland, it is available on new builds, but with a price limit of £300,000.

The equity loan is granted interest-free for the first five years.

Force help to buy

Forces Help to Buy allows Armed Forces personnel to borrow up to 50% of their salary interest-free to fund a security deposit. The maximum loan available is £25,000, which is to be repaid over 10 years.

The program is expected to last until the end of 2022.

You can read more about the rules in our full Buyer’s guide.