Thursday, May 30, 2024

How Does the UK Government Help House Buyers in 2022?

Everybody dreams of having a home they can call their own. To help fulfill the dreams of millions who are facing the challenge of getting on to the property ladder, the UK Government are offering more beneficial and generous help to buy schemes than we have ever seen before.

The Government has offered help to buy schemes for first time buyers for over a decade, but these have often been packaged in inconvenient ways. It’s more been an arrangement with the developers for example Barratt homes, rather than arrangements with mortgage lenders which seems to be the new approach in 2022. Nowadays, the Government are offering lenders insurance against any defaults and directly offering Interest free loans to house buyers with the Help to Buy Equity Loan scheme which was announced in April 2021 and will run until March 2023. 

How will the Equity Scheme Help House Buyers

Since the Equity Loan was released in April 2021 it has already been used by nearly 300,000 people. When buying a house the home must be in England, a new build and not exceed the value of the price cap set for different regions, for example in London you can buy a house worth up to £600,000 but in other regions such as the North East the house value price cap is as low as £186,100, reflecting the lower value of homes in that region. All the price caps for different regions can be seen in this advice for house buyers.

Other Features of the Scheme:

  • The buyer pays a 5% deposit and the Government will provide a loan for the remaining 20% of the property value, meaning that the new homeowner can also benefit from a 75% LTV mortgage with a great interest rate.
  • The Loan is interest free for five years, after that it is 1.75% a year.
  • If you are buying a house in London then the loan can be up to 40%. 
  • The amount you owe increases if the house value goes up, so you will owe the government 20% of the sale price not the value when you bought the home.

A Property Investment for The Government and the Homeowner

It would be best to sell your house before the Interest free period ends at five years. If the property value increases the homeowner needs to appreciate that they will only get to keep 80% of that value increase. However that’s 80% of a bigger house than they could have afforded without the scheme, so the homeowner shouldn’t be too bothered about the government’s own property investment interest. 

Government Assisted Mortgage Lending

In March 2021 the government introduced the Mortgage Guarantee Scheme as a way to assist home buyers to buy a house with a 5% deposit. Under this scheme, the UK Government stands as guarantor to the lenders for a mortgaged property in case the buyer defaults. This has resulted in lenders offering more 95% LTV mortgages. Buyers need to bare in mind that the high loan to value will lower the amount they are able to borrow.

Save for your Deposit in a LISA

Additionally, the LISA (Lifetime ISA Account) also provides a major benefit to home buyers. A tax free system to save £4000 per year, when saving into a LISA the government gives you an additional 25% on your savings at the time when you want to withdraw.

There are two methods under a LISA that a home buyer can withdraw without paying any penalty. They are: buying a home for the first time or on reaching 60 years as a pensioner.

There is a early withdrawal clause that must be kept in mind, it is quite a high penalty which is currently set at 25%. With all going to plan a combination of saving for your deposit into a LISA and then utilising one of the government’s house buying schemes, can enable many house buyers to get onto the property ladder quicker and cheaper than they had previously thought.  

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