The equity loan program has helped more than 200,000 home buyers buy a home. It means that consumers with a lower deposit can improve their chances of earning a mortgage and get into the asset. However, this approach to buying a home has its drawbacks.
What is a Help to buy?
Help to Buy is a series of government programs designed to help first-time buyers buy new goods. Purchase Assistance is only available for new homes built by certain developers. There are several things in the government’s Purchasing Assistance programs: Purchase Assistance: Equity Loans, Purchase Assistance: Shared Ownership, and Purchase Assistance for ISAs.
How does help to buy work?
Purchase Assistance: The equity loan system allows buyers to buy a new home for just 5% of the deposit. Government loans include the full value of a home and the balance covered by a standard loan. The great thing about equity loans is that they allow home buyers to have a smaller loan, without having to save a large deposit.
The size of the loans available depends on where you live. Across England, homebuyers can borrow 20% of the total value of a home. If you are looking to buy a home in London, a 40% loan is available, due to the high prices in the capital. Interest will not accumulate on the loan for the first five years, but after this time you will need to start paying interest. These payments are not a capital payment, so the full amount you owe will remain in place until the end of the loan period or until you sell the property, unless you choose to pay it before then.
Advantages
Help to Buy has helped 400,000 people find a foothold in the housing stage (since October 2018). Here are some of the reasons why Buying Help can be a great option for you when you want to buy your first home.
1.You do not have to wait until you make a deposit
Saving a deposit can take years, especially when home buyers want to get a low-cost LTV loan to get the most competitive deals. Therefore, with their equity loan, the Help to Buy program allows you to buy a home with a small mortgage, even if you only have a 5% deposit. For example, instead of a mortgage limit of 95%, if you use Help to Buy to get a 20% loan (or 40% in London), your mortgage will only be 75% or 55% of the real estate value.
- Availability of cheap prices for collateral
With the help of a Debt Equity Loan, you can get a much lower loan-to-rate mortgage and other competitive deals than if you could only get a 95% mortgage. Usually, to reduce your loan amount, your credit rating is very competitive.
Disadvantages
Purchasing Assistance may have helped hundreds of thousands of Brits to buy property. Still, it has its pitfalls. Some procrastinators go so far as to say that it creates a housing bubble, which will explode when the program ends. Some point to the fact that this program makes some engineers very rich. So, what are some of the disadvantages to consumers?
- The amount you owe is not fixed
Your mortgage is based on a percentage of the value of your home, which can change with the housing market. So, if your home’s value increases, you will have to pay more than what the government originally loaned.
- Your loan will be more expensive
After the interest-free period finishes, you will pay another 1.75% interest on your sixth year of the loan. After this, your interest rates will increase according to the Retail Price Index (RPI), plus 1%. Therefore, there is a chance that if the interest rate increases you may be asked to pay an uncontrolled amount.
Help to buy is a very generous government scheme that allows people the help they need to get onto the property ladder. However, it is not as simple and straightforward as it may seem. See our advantages and disadvantages above to determine whether the help to buy scheme is right for you.
