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Half of first-time buyers plan to use Help to Buy

Despite mortgage rates hitting record lows, to get the best deals you now need even bigger deposits. Yet with house prices staying high, even getting an initial lump sum is a major problem for first-time buyers. So what’s the alternative?

Four in ten of those hoping to get on the housing ladder said saving for a deposit is the biggest barrier to getting on the housing ladder.

That’s prompting half to see the Help to Buy scheme as the best way to buy with a small deposit, according to a survey by Ocean Finance.

One in five are also hoping to get a cash injection from the new Help to Buy ISA when it launches in the autumn, while just 14% expect to get some help from their families.

If you think Help to Buy could help you get your first home, here are the three things you need to know.

Help to Buy isn’t just for first-time buyers

As long as it’s not a second home or a property to rent out, you’re eligible. You’ll also need to already have at least 5% of the deposit saved up, and the property value can’t be more than £600,000.

Unfortunately the scheme is no longer available in Scotland.

There are two ways to use the scheme

You can either apply for an “equity loan” or choose a mortgage which is part guaranteed by the government.

With the loan, the government will lend you up to 20% cash towards a new build home. You don’t pay interest on the equity loan for the first five years, and then start paying interest in the sixth year. You pay back the loan when you sell or pay off the mortgage, along with a proportion of any profit you make.

For the mortgage guarantee, you’ll apply for a Help to Buy mortgage in the same way as any other. The difference is behind the scenes the government guarantees to cover the lender’s losses, up to 20% of what you borrowed, if the mortgage isn’t repaid. This doesn’t have to be on a new build.

You’ll still have to prove you can afford the home

Whether you’ve got a deposit of 5% or 35%, you still need to apply for a mortgage, which comes with affordability tests to check you can repay the money. You’ll be assessed on your income, how you spend your money and your ability to cope if something big affected your finances – from having a baby to a rise in interest rates.

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  • John watson / 10 March 2016

    Hi i have the right to buy my flat in August,2016.
    Would the discount act as my deposit and would i be entitled in the help to buy isa?