Help to buy and shared ownership
Just because you have a small deposit doesn't mean you can't get a foot on the property ladder.
There are some options from the UK Government that could help, this is a complicated area and not all brokers advise on these schemes. We always recommend you read the Governments useful guide here prior your mortgage appointment.
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Help To Buy Equity Loan
In summary you provide a 5% cash deposit and the Government could lend you up to 20% of the costs a newly built home; this means you need a 75% mortgage.
The Government won't charge you loan fees on their contribution for the first 5 years. This means you have 5 years to repay the government loan. If you don't pay the loan back within this term you'll pay an interest fee of 1.75% of the amount of your equity loan at the time you purchased your property, rising annually from the fifth anniversary of your equity loan by the increase (if any) in the Retail Price Index (RPI) plus 1%.
Lets see this works in principle:
For a purchase of a new build costing £200,000 you would need.
5% Deposit £10,000
75% Mortgage £150,000
The Government would loan you £40,000
If the home in the example above sold for £210,000, you’d get £168,000 (80%, from your mortgage and the cash deposit) and you’d pay back £42,000 on the loan (20%). You’d need to pay off your mortgage with your share of the money.
With the shared ownership scheme you buy a share of a property, typically between 25% and 75% and rent the remainder. As time goes by and your income increases you can buy a bigger share (this is known as staircasing)
With Help to Buy: Shared Ownership you can buy a newly built home or an existing one through resale programmes from housing associations. You’ll need to take out a mortgage to pay for your share of the home’s purchase price, or fund this through your savings.
There are certain criteria that needs to be met for a Help to Buy Shared Ownership scheme, such as:
Your household earns £80,000 a year or less outside London, or your household earns £90,000 a year or less in London
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.
Do I need a Buy To Let mortgage to rent out a property?
Unless you cash buy the answer is most certainly, Yes.
The mortgage for Buy To Lets is a special type of loan which is assessed differently to a normal mortgage. This is mainly because you will not be the permanent resident.
The amount you can borrow on a Buy To Let is also calculated different. With a residential mortgage this is based on your own income (among other things), a buy to let mortgage is assessed based on how much rent the property can generate.
What are the main differences between a Buy To Let mortgage and a standard mortgage?
As explained above the amount you can borrow is largely assessed on the property's profitability, i.e. how much rent it can generate vs. the cost of the mortgage – rather than on your own personal financial circumstances.
A buy to let mortgage is the only one that allows you to rent out the property to tenants, this is not allowed under the terms of a residential mortgage.
Other important changes are:
It is not uncommon for interest rates on buy-to-let mortgages to be higher than residential mortgage rates.
A higher deposit is needed for a buy-to-let mortgage compared to a normal residential loan. Most lenders will require at least a 20% deposit.
Arrangement fees tend to be calculated as a percentage of the amount you're borrowing, rather than just a flat fee.
Do you want to rent out your current home?
We help many clients who want to move home but keep their existing property and convert it to a buy to let.
There are two options, you can ask your current lender to consent to the property being let out or arrange a buy to let re-mortgage.
Always remember that failure to notify your lender that the property has changed to a buy to let could have serious consequences.
If you need to release some equity from your current home to fund a new purchase, you can do so during the re-mortgage process – provided you have sufficient equity and satisfy the lender's criteria.
Should you take responsibility to accommodate a tenant, you also need to ensure certain things are in place like landlords insurance.
We can help
If you are thinking of buying your first buy to let property, adding to your current portfolio or if you need to re-mortgage your current buy to lets we can help.
Please note the Financial Conduct Authority do not regulate most Buy to Let mortgages.
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