Buying your first home. What an exciting time in your life! It’s the start of a new chapter, but it doesn’t come without its struggles. Getting a mortgage can be hard enough, but add in the technical jargon and it can become the first-time buyers Mount Everest.
Data released by Aldermore highlights the fact that many first-time buyers don’t understand mortgage terminology, and could be missing out on schemes that are designed to help them.
But what terms do people struggle with and what do they actually mean?
Slightly over half of respondents weren’t aware of the ‘Help to Buy equity loan’ – this is where the government lends you up to 20% of the cost of your newly built home, interest free for the first five years, so you’ll only need a 5% deposit and a 75% mortgage to make up the rest!
Just under half didn’t understand what a ‘lifetime ISA’ was and slightly over one third didn’t know what a ‘Help-to-Buy ISA’ was. These ISAs allow first-time buyers to get a 25% government bonus on their savings for a first home, each with different rules which is why seeking professional advice is worthwhile.
35% of respondents also didn’t understand ‘shared ownership’ – where first-time buyers own a share on their home and pay rent at a reduced rate on the remaining share.
These figures suggest that many first-time-buyers could be missing out on various benefits and pathways that these schemes can provide for those wishing to enter the property market, which is why obtaining professional advice can be invaluable.
Your adviser will be able to help you understand these terms and explain the benefits of the different schemes.
If you or your loved ones want to discuss the options available to you, or talk through any of the schemes in more detail, contact us today.
What is a gifted deposit?
A gifted deposit is a sum of money that is given by somebody, usually a family member, which forms all or part of a deposit for someone buying a property.
- It is important to remember that if you gift a deposit, it is just that, a gift. This means you will be required to sign a written declaration that states it is a gift and that the home buyer is not required to pay it back.
- If you plan to give a gifted deposit you should seek independent advice to ensure you understand you will not have an interest in the property or the right to get your money back.
- Most lenders will accept gifted deposits from close family members and a few will even accept gifted deposits from more distant relatives and friends.
- The lender or solicitor may request to see a bank statement or other documentation to evidence where the gifted deposit has originated from.
- A gifted deposit can be used alongside the applicant’s own savings or the Help to Buy scheme.
What are the alternatives to gifting a deposit?
There are many other ways parents can support their children when purchasing their first home and different ways borrowers can maximise their savings for their deposit.
- Low-deposit mortgages – the availability of products that offer a 95% or 90% LTV has substantially increased. This means that mortgages are now more accessible for buyers with smaller deposits.
- Guarantor mortgages – parents can be named on the mortgage to enhance the affordability for the first time buyer. They can also offset their savings or even take out a joint mortgage with their children.
- Government schemes – if the buyer can’t be helped by their family, government schemes such as Help to Buy or Shared Ownership could be good options.
- Help to Buy ISA – as well as the government schemes listed above, a Help to Buy ISA could assist the buyer in saving a larger deposit. The Help to Buy ISA provides a 25% bonus to first time buyers on a limited amount of savings when it is being used to purchase a house.
If you would like more information about giving a gifted deposit or other options for first time buyers then speak to one of our advisers today.
On Saturday 1st October, we will be attending the Help To Buy Roadshow in Telford. The roadshow will be a one-stop-shop for anyone looking to buy a new property using Help To Buy, with a wide array of house builders and housing associations in attendance.
We will be offering free, independent mortgage advice to guide you through the house buying process. The roadshow is free to attend, and open between 10am and 4pm, at the Holiday Inn, TF3 4EH.
We are pleased to say that we will be attending the Housing Plymouth event on the 18th June 2016 at the Royal Parade Piazza, Plymouth. The event is open between 10am and 4pm with the aim of providing a “one-stop shop” for all things housing.
We will be there throughout the day to provide free, independent advice on the variety of housing options available to you. Our experts will be able to assess your situation and provide information on the type of schemes that best suit you.
Help to Buy ISA’s are a tax free account, designed to help First Time Buyer’s save a deposit for their first home. You can pay in up to £1,200 in the first month, followed by £200 per month thereafter. Once you have saved a minimum of £1,600, you are then eligible for a bonus from the government of 25% of your savings. This means that for every £200 you pay in, the government will add £50 to the deposit.
This bonus is capped at a maximum of £3,000 per person, however if 2 people are buying together, they can both open their own ISA’s and so benefit from two bonuses.
To get the full £3,000 bonus, you would need to pay in a total of £12,000 across 5 years. When you are ready to buy the property, the solicitor will request the bonus from the government, to add to the savings you already have.
On Saturday 12th March 2016 we will be attending the Help to Buy Homes Show at Hatherley Manor, Gloucester.
We will be providing face to face, free financial advice for anyone considering the Help to Buy Shared Ownership or Shared Equity schemes.
Experts from various Housing Associations will also be there to discuss the different renting options and to give information on what properties are available.
The show runs from 10am to 3pm and entry is free. Tickets can be downloaded here.