Options for Home Ownership

If you or your household are considering the possibility of purchasing your own home in the future, it is important that you understand the opportunities and risks involved.  Detailed below are some useful guides to preparing to save and looking for a mortgage.  However, if you are serious about this, we strongly advise that you get qualified and impartial advice.

As part of our proposed programme of building new homes over the next five years will be offering some new homes for sale or part ownership.  In most cases these will be below the open market value, but may be tied to connection to a specific area.  Do continue to visit our website if this is smething you may be interested in.

Shared Ownership - VHA does part own some shared ownership properties together with the tenant/occupier.  Shared ownership is where there is an option to purchase a share in a property, normally up to a maximum of 80% although, depending on the individual scheme, this can be as low as 10% with the option of ‘stair-casing’ i.e. gradually purchasing a higher proportion when affordable.  The shared ownership part that remains owned by the association is provided on the basis of a rental agreement and normally this would also include the management costs, for example - Buildings Insurance.

The benefit for the above scheme is that the applicants have the security of knowing that they own part of the residential property.  

Also available is the Government support in ‘Help to Buy’ and full details are confirmed on the Government’s ‘Help to Buy’ website.  This can be an interest free loan for the first five years and then a proportion of the interest is gradually built up over time.  Careful guidance needs to be clarified in educating the proposed purchasers.

Home Ownership – these are first time and second time buyers.  These days, the clients need to build up a minimum deposit of normally five per cent.  The higher the deposit, the better the loan to value and the likelihood of a more competitive product available from the lender appropriate to the large equity available.

Builders’ Incentive - there are some builders that give incentives, whether a capital or monthly amount.  One recent buyer had a £5,000.00 deposit, exchanged contracts and then paid rent up to a maximum of two years.  The price was fixed with the builder at outset and then once completed, all the rent went towards the deposit which therefore gave them the opportunity of a higher deposit and a better facility for borrowing capacity.  If the person did not purchase, they only got the £5,000.00 deposit returned whereas, the monthly amount would have been classed as rent.  This can therefore give a good incentive for some first time buyers.

Mortgages – there are various types of mortgage categories, for example - first time buyers, home movers (moving for the second or third time) and the remortgage market.  Products can vary from the lenders’ variable base rate to trackers, discounts and fixed rates.  The lower the loan to value, the better the margins being offered by the appropriate providers.  Also, are the varying arrangement fees and therefore a careful balance needs to be given appropriate to the size of the loan to the initial fees being charged.

Saving for the Deposit - normally you would have to save for the particular deposit, legal costs including Stamp Duty and the appropriate mortgage fees, for example - whether a mortgage basic valuation fee or a Homebuyer’s report.  All of these costs can be upfront or some can be added to the loan and therefore, an amount needs to be comfortably built up.  

This can either be their own savings or sometimes, parents can support their children.  Alternatively, there are schemes available with some lenders that, for first time buyers, parents can link their earnings and deposits to a particular mortgage deal.

How to Save – Banks and Buildings Societies offer various types of accounts to assist in saving for a deposit.  If you open up a regular style account and commit to save an amount each month, these can offer higher interest rates than ordinary instant access accounts and therefore careful research needs to be given.  

Interest rates are now paid gross whereas previously, they used to be paid net.  This meant that if you were a non-taxpayer, you would have to complete a specific form from the Inland Revenue.  Now, each individual can earn up to £1,000.00 per year on interest without incurring tax which would be classed as gross plus, there are Cash ISAs which are tax efficient.  

Separate to this, there is the Government’s Help to Buy ISA which is a deposit based account for which the various providers have in situ.  This is a savings plan for each first time buyer only to qualify.  They can save an initial amount of up to £1,200.00 and then up to £200.00 per month thereafter for a maximum of three years.  

The interest rate is offered by the various providers.  As long as a maximum of three months is completed and for no more than three years, they would then be entitled to a 25% enhancement from the Government which, the solicitors would draw down at the time of the proposed purchase.  Full details are available on the Government’s Help to Buy website.

This would therefore be a maximum of £9,000.00 with the tax relief being a maximum of £3,000.00 that the solicitors would draw down from the Government prior to the required purchase.  If both clients are first time buyers, then this could be double the amount.  

Credit Status – each of us have our own credit score, which will be important if you are considering applying for a mortgage. It may be that for a range of reasons your score is not at a level you might need to get your loan.  You therefore need to learn how to improve this.  For example, by going on the Experian website you can find out what your individual score is.  The maximum score, classed as ‘excellent’, would be 999.  This is a free service.   Ways of improving this score can be to ensure you are on the Electoral roll where you reside.  

Credit cards are to be used and cleared monthly and to ensure that you do not use these to their credit card limit.  This will ensure that equity within the particular card can be seen. Therefore, it is important to ensure that the credit cards are not near to their ‘ceiling’ limits.  

If you have an overdraft limit, you need to ensure that you do not continue to go into this and to not use this near to its ‘ceiling’ limit.  By doing so, this will reduce your credit score status.  Therefore there are ways of improving if the initial score looks low.  It is also important to ensure that there are no defaults or if there is a default in place, to ensure this is satisfied.  After a period of time, lenders will consider this but it will depend on the size of the actual default at outset.