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The pros and cons of Help to Buy schemes?

Publised date : 01 Dec 2018

If you can't currently afford to buy a new home then one of the four Scottish Government schemes that exist currently could help you turn your dream into a reality.
The scheme that's right for you will depend on what type of home you want to buy, and how much of the total cost you're able to cover.
What are the pros and cons of each?

Option 1: Help to Buy (Scotland): Affordable New Build

If you are over the age of 60, you can access this scheme with the help of savings and/or equity from a house sale, rather than needing to take out a mortgage for your share of the equity. That minimises the cost to you.

If you are under 60 this scheme can also help, but you’ll need to be able to fund a mortgage to cover a minimum of 85% of the home's total purchase price. The balance is paid by the Scottish Government, which will hold the remaining percentage share under a shared equity agreement.

A positive of this route is that it allows you to purchase a new build home without the need for a large deposit.

Another positive is that it is open to you even if you have been a home owner previously, but you will need to be living in rented accommodation when you apply, and be able to show that you cannot afford to buy a new home with the support of the scheme.

You might be worried about the ‘Golden Share’, which the government can apply. It simply gives them first right of refusal to buy your home for the current market price if and when you want to sell. That will be applied only in areas where affordable homes are in short supply and ensures people can benefit in future. It doesn’t impact negatively on the valuation of your home when you want to sell.

Under the Affordable New Build Scheme, your new property must cost less than £200,000, which is the threshold price set by the Scottish Government up to and including March 2021.

Option 2: Open Market Shared Equity

This scheme allows you to try and buy a home on the open market, if you meet the eligibility criteria. That is a buyer who is either:

  • aged over 60
  • renting from the council
  • renting from a housing association
  • are disabled
  • a serving member of the armed forces, or a veteran who has left service within the past two years
  • or you are the widow, widower or partner of a member of the armed forces who died within the past two years, whilst still in service.

Since the scheme is aimed at households with low to medium incomes, you will be assessed to see if you qualify. You must demonstrate that you simply can't afford to buy a home that meets your needs without help from the OMSE scheme.

If you qualify then If you want to buy an existing home that is for sale on the open market then you must be able to afford at least 60% of the cost. You must be a first time buyer and the property must be intended as your main residence. You cannot use the scheme to buy a property to rent to others.

New Supply Shared Equity

This scheme lets you buy a brand new house that's being built by a Housing Assocition.  You must be able to pay at least 60% of the cost. You must be in one of the same qualifying groups as OMSE, but you can be either a first time buyer or have previously owned a home but have subsequently experienced a significant change in your personal circumstances, such as a divorce.

You should not feel that the need to be assessed is a negative. If you qualify then you will get support to buy a new home that meets your needs.

Shared Ownership

Shared ownership is another route to buying a home. It is very different from shared equity, where you own the home outright.

With shared ownership, the housing association continues to own a proportion of the home. On the negative side, you therefore pay them an 'occupancy charge' until their share is bought out. The charge is a percentage of the normal charge paid by tenants, reduced to match your share in the home’s equity.

On the plus side, the housing association will be liable for a proportion of the costs to maintain and repair the building.

More information

For further information on any of the schemes contact: jamesirvine@positivemortgages.co.uk

General

Your home may be repossessed if you do not keep up repayments on your mortgage.

The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.

 

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James Irvine is not authorised to give financial planning advice but could refer any queries to a financial adviser within Positive Solutions (Financial Services) Limited.

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