Can I get help to buy as a Contractor?
Well, the answer is… Yes! Though a little different to an employed first-time buyer, you shouldn’t rule out help to buy.
With an increasingly volatile property market, it is becoming harder to get your foot on the property ladder. With an estimated 1.75m renters believing they will never own their own home* things do look bleak, especially if you’re considered an independent professional (contractors, freelancers, self-employed, etc.) or have a complex income.
But there are avenues you can take like the Help to Buy schemes or Shared Ownership, and these ideas can sound like the perfect way to help you; but could they be too good to be true at this time? Our Mortgage Expert Dale Parry gets into the details of Help to Buy and see if the pros and cons make it the right option for you.
Firstly, if you’re not familiar with them, Help to Buy schemes were set up by the Government and are designed to help potential buyers who are struggling to get an initial deposit together for their first home. With the help of these schemes, first-time buyers (including independent professionals) can buy newly built properties from approved Developers with a 5% deposit
What’s in the guide?
- Help to Buy options available
- Other options
- Are there any restrictions?
Help to Buy options available
Help to Buy: ISA
This was set up by the government in December 2015. People over 16 can earn interest of up to 4% on money in the ISA and get 25% added on top when they withdraw the money to use it for a mortgage deposit. The Help to Buy ISA is available for new savers until 30th November 2019, however you can still keep saving in your account if you opened it before then. You must claim your bonus by the 1st December 2030. *
Putting your money into the ISA allows the government to boost your savings by 25%, with their contribution capped at £3000 (i.e. you save £12,000 and they will top it up with a maximum of £3,000, to give a total of £15,000).
The ISA allows you to save up to £200 a month, as well being able to deposit a lump sum of up to £1,200 in your first month. The Help to Buy ISA is available for new savers until 30th November 2019, however you can still keep saving in your account if you opened it before then. You must, however, claim your bonus by the 1st December 2030.
Who is eligible?
To qualify for this ISA, you need to be:
- Over the age of 16
- Be a UK resident
- A first-time buyer
- Not have another active cash ISA in the same year
Other stipulations include:
- Have a National Insurance number
- Not have another active cash ISA for the same tax year
- The property that you invest in must be based in the UK, cost up to £250,000 or £450,000 in London and must be purchased with a mortgage.
- You can use this scheme alongside other schemes including the Equity Loan and Mortgage Guarantee.
Equity Loans are open to both first-time buyers and home movers on new build homes in England. Once you have acquired a 5% deposit, the government will add on a loan of up to 20%, meaning that you’ll have a total of a 25% deposit. No fees will be applied for the first 5 years of owning your home. In the sixth year, a charge of 1.75% of the loans value will be applied.
Beyond this, the fees will increase each year in line with the Retail Price Index (RPI). In November 2015, the Government announced an extension of the initiative up to 2021. *
For example, if you purchased a home for £200,000:
- You would take out a mortgage for 75% – £150,000
- You would pay a 5% cash deposit – £10,000
- The Government would provide an equity loan for the remaining 20% – £40,000
From 1st February 2016 for new home buyers in the London boroughs, the Government has increased the upper limit for the equity loan it gives from 20% to 40%.
Who is eligible?
This scheme is eligible for both first-time buyers and existing homeowners looking to move into a new build house. You can purchase a property up to a maximum value of £600,000. You must not own any other property and the mortgage you take out must be a repayment mortgage, not interest-only. The scheme is set to run until 2021.
Help to buy London Equity Loan
Due to the increased property prices in London, Help to Buy will lend you up to 40% of the cost of your new home up to the value of £600,000 in all London boroughs. Along with your deposit of 5%, this will give borrowers a 45% deposit to purchase a new build property. As with the standard help to buy equity loan no fees will be applied for the first 5 years of owning your home.
Shared Ownership schemes allow buyers to get onto the property ladder by offering them options to purchase a percentage of a house whilst renting the remaining percentage. The scheme usually offers a purchase option of between 25 – 75% of the property to begin with, with options to purchase more in the future (known as ‘staircasing’).
It’s best to bear in mind that each country in the UK has its own Shared Ownership scheme, and each are run a little differently from each other.
Remember that for Shared Ownership schemes, although you own only a share of the property you still have to pay all of the maintenance costs.
Who is eligible?
You are eligible to purchase a home through Help to Buy: Shared Ownership in England if your household earns £80,000 a year or less outside London (£90,000 a year or less in London), if you are a first-time buyer, you used to own a home but can’t afford to buy one now or are an existing shared owner looking to move.
If you are aged over 55, you will be able to access help from the ‘Older People’s Shared Ownership’ scheme. This is similar to the regular Shared Ownership scheme, but it only lets you buy 75% of the property. Once you own that 75%, you won’t have to pay rent on the remaining 25% of the property.
Are there any restrictions?
The Help to Buy schemes were not set up for people to buy second homes with, or to purchase properties that you intend to rent out (i.e. Buy to Let). They also cannot be used for anyone who is already using or going to be using another home buying scheme. However, you can use the Help to Buy: ISA alongside the Equity Loan OR Mortgage Guarantee schemes.
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