Types Of ‘Affordable Home Ownership Schemes’

Affordable homeownership schemes is a blanket term used to describe the various types of government schemes that help people purchase their first house and get on the property ladder.

These schemes are also widely referred to as “help to buy schemes”, due to the popular Help To Buy Equity Loan and Help To Buy ISA.

In this article, we are going to outline the various types of affordable home ownership schemes.

Help To Buy Equity Loan

The Help To Buy Equity Loan scheme is a popular government scheme that has helped thousands of first-time buyers get on the property ladder. It was designed to help those on a low income own their own home.

The scheme offers first-time buyers an equity loan that is 20% of the property purchase price. This loan is interest-free for the first five years. With the equity loan, the buyer only needs a 5% deposit. The following 75% can be borrowed from a mortgage lender, on a repayment basis.

To be eligible for the Help To Buy Equity Loan, you must be:

  • 18 or over
  • a first-time buyer
  • able to afford the fees and interest payments

Plus, the property you purchase must be:

  • a new-build
  • sold by a Help to Buy registered homebuilder.

Shared Ownership

Shared ownership is exactly what it says on the tin. It allows you to buy a share of a housing association property (between 10% and 75% of the home’s value) and pay rent on the remaining share. The remaining rent is cheaper than it would be if you did not own a share of the property.

Housing associations provide newly-built and existing homes through resale programmes. Once you have purchased a share in your home, you can purchase further shares in a process known as “staircasing”. Through staircasing, you can go onto own 100% of your home.

Some councils also have their own shared ownership home-building programmes, however, these tend to have long waiting lists and give priority based on local housing needs.

You are eligible to buy a home through shared ownership if:

  • your household earns £80,000 a year or less (£90,000 a year or less in London)
  • you cannot afford all of the deposit and mortgage payments for a home that meets your needs

One of the following must also be true:

  • you’re a first-time buyer
  • OR you used to own a home, but cannot afford to buy one now
  • OR you own a home and want to move but cannot afford a new home suitable for your needs
  • OR you’re forming a new household – for example, after a relationship breakdown
  • OR you’re an existing shared owner and want to move.

Help To Buy ISA

Help to Buy ISA’s were designed to support people saving for a home. Help To Buy ISA’s allow you to put up to £200 a month into an ISA to save for a mortgage. Then, the government will top up your savings by 25% (up to £3,000) when you come to buy your first home.

Help to Buy ISAs are no longer available to open. However, if you already have a help to buy ISA, you can pay into it until November 2029 and can claim the government’s 25% contribution until November 2030. The 25% government bonus does not have to be paid back.

The home you buy with your help to buy ISA must:

  • have a purchase price of up to £250,000 (or up to £450,000 in London)
  • be the only property you own
  • be the home you intend to live in.

Mortgage Guarantee Scheme

The mortgage guarantee scheme was launched in April 2021 to encourage mortgage lenders to offer 5% loan-to-value (LTV) mortgages.

These 95% mortgage products had previously helped countless people get onto the property ladder. But mortgage lenders stopped almost all of these products during the COVID-19 pandemic.

With encouragement from the government’s mortgage guarantee scheme, at least five of the UK’s leading mortgage lenders launched new 95% mortgage products as soon as the initiative launched.

These products provided a range of new mortgage options for people who could not afford a 10% deposit. The scheme aimed to increase the number of 5% mortgages available, but people can choose to have a 5%-9% mortgage too.

First Homes

Launched in June 2021, the First Homes scheme allows first-time buyers to purchase a home with up to a 30% discount. The house must be a new-build and must be considered to meet the definition of ‘affordable housing’ for planning purposes.

The scheme is available for first-time buyers with a household income of less than £80,000 (£90,000 in London). Buyers must be able to take out a mortgage that covers at least 50% of the household price.

Right To Buy

Since 1980, the Right To Buy scheme has helped tons of people on a low income purchase their first home. The right to buy scheme allows people to buy the council house they rent. Joint applications are also available. People can apply to buy the council house they live in if:

  • it’s their only or main home
  • it’s self-contained
  • they are a secure tenant
  • they have had a public sector landlord (for example, a council, housing association or NHS trust) for at least 3 years – it does not have to be 3 years in a row.

Summary

If you are struggling to get on the property ladder, there are various government schemes currently available to help you purchase your first home. Check out the GOV.UK website for more information on current affordable home ownership schemes.

Article Author:

Name: Chloe Curwen

Position: Content Marketing Executive

Organisation: GrowTraffic Ltd.

Date: November 05, 2021