News

What you need to know about Coronavirus mortgage payment holidays

In recent days the Government has announced plans for payment holidays for mortgage borrowers. The original proposal was for residential borrowers which have since been extended to cover Buy to Let mortgages.

As a summary for our clients, we thought it would be useful to forward the below briefing notes from the Financial Conduct Authority.

Payment holidays

A ‘payment holiday’ means you agree with your lender that you will not have to make mortgage payments for a set amount of time. Payment holidays are designed to help you when you may experience payment difficulties – in this case because of the coronavirus situation.

It is important to remember that you still owe the amounts that you don’t pay as a result of the payment holiday. Interest will continue to be charged on the amount you owe.

This means that, at the end of the payment holiday, you will have to make up the missed payments. There will be various options for doing this, for example by increasing your monthly payments slightly, or by adding a short extension to your term. Your lender will be able to explain to you what options it offers.

Applying for a payment holiday

You should contact your lender if you think you may potentially experience payment difficulties as a result of the coronavirus situation.

Your lender shouldn’t need any evidence that your income has been affected by coronavirus.

Interest on your mortgage during the payment holiday

You will still be charged interest during the payment holiday, unless your lender has told you otherwise.

When the payment holiday ends

At the end of the agreed payment holiday, you will continue to make payments. And you will need to agree with your lender a manageable way to make up the missed payments given your circumstances. Your lender will explain to you the options that they offer.

If you are still not able to make your full mortgage payments due to coronavirus, then it may offer you a further payment holiday if appropriate to your circumstances.

Your credit score

Our guidance makes clear to firms that they should ensure that taking a payment holiday will not impact your credit score.

Agreeing the payment holiday

We expect lenders to offer payment holidays to borrowers who may experience payment difficulties as a result of the coronavirus. Many lenders have already committed to this.

Your lender may also offer other options if they are more appropriate for your circumstances, and where it is in your interest.

If you are behind with your mortgage payments.

You can still have a payment holiday. You will need to discuss this with your lender. It will consider whether a payment holiday is appropriate as well as any measures that are already in place to help you through your payment difficulties.

How long do I have to apply for a mortgage holiday?

If you think you may experience payment difficulties and may need a payment holiday, you should speak to your lender in good time before the next payment is due. Please be considerate of others when contacting your lender and allow those with much closer dates into the queue first.

You can apply for a payment holiday at any time before this guidance is reviewed in 3 months. The payment holiday will not start, however, until it has been agreed with your lender.

Contacting your lender at this time

Lenders have committed to responding as quickly as possible, but due to high levels of demand and staff having to work from home, service levels might be slower than usual.

 

Financial Conduct Authority

20th March 2020

It’s business as usual at Concise Financial Solutions

As the outbreak of the Coronavirus continues to expand, we are closely monitoring the impacts of this in the UK and around the world. We will remain compliant with all UK Government and Public Health guidelines as this situation develops and the safety and wellbeing of our clients and team remains the top priority.

We have introduced more frequent and thorough cleaning of the offices so anyone needing to visit can be reassured we are taking the current situation very seriously. We are also actively exercising social distancing practices, so please do not be offended if our team do not shake your hand and keep a sensible distance from you. In addition, any team member displaying symptoms of the Coronavirus will be required to self-isolate.

We are also offering appointments remotely for our clients who are unable to visit our offices plus we have in place the provision for 100% of our team to be fully operational from home should the need arise.

We look forward to speaking with you soon however, in the meantime, be safe and remain healthy.

Coronavirus: UK interest rates cut to lowest level ever
19 March 2020

BBC News

The Bank of England has cut interest rates again in an emergency move as it tries to support the UK economy in the face of the coronavirus pandemic.

It is the second cut in interest rates in just over a week, bringing them down to 0.1% from 0.25%.

Interest rates are now at the lowest ever in the Bank’s 325-year history.

The Bank said it would also increase its holdings of UK government and corporate bonds by £200bn with an effort to lower the cost of borrowing.

It’s a dramatic move by Andrew Bailey, who only took over from Mark Carney as Bank of England governor on Monday.

Last week, the Bank announced a 0.5% cut in rates to 0.25% and a package of measures to help businesses and individuals cope with the economic damage caused by the virus.

The move coincided with additional measures announced by Chancellor Rishi Sunak in the Budget.

Coronavirus: How the Bank rate cuts affect you

Bank of England boss: Don’t fire people

UK interest rates cut in emergency move

However, the Bank said the measures it had taken so far were not going to be enough, and believed “a further package of measures was warranted”.

“The spread of Covid-19 and the measures being taken to contain the virus will result in an economic shock that could be sharp and large, but should be temporary,” it added.

The move comes as international investors are trying to secure more cash, in particular dollars. This means they’re ditching assets such as UK government gilts, which are the “IOU” notes the government hands over to private investors willing to lend it money.

As the gilts are sold, the price drops and the yield – the effective interest rate compared to the price – rises. What that means is the cost of borrowing to private investors as well as to the government rises – just when the Bank of England wants it to fall and the government is about to borrow huge sums.

The Bank of England’s plan to buy £200bn more bonds is aimed at fighting that effect.

‘Lowest possible’

The fresh rate cut takes interest rates to the lowest they can feasibly go, said Jeremy Thomson-Cook, chief economist at payments company Equals Group.

“Lower rates and additional quantitative easing can keep markets satisfied and borrowing costs for both businesses and the government down but unless money is forced into the hands of small businesses soon, then it will be for nothing; they are the ones laying off staff due to a liquidity shock,” he added.

Karen Ward, chief European market strategist at JPMorgan Asset Management, said: The support to the economy and health system will require vastly higher government borrowing. The central bank showing willing to buy government debt will ensure the market can absorb this additional issuance without undue stress.”

The Bank of England Governor has said today’s second emergency rate cut in just over a week occurred after financial markets became “borderline disorderly”, with fears about coronavirus leading to a rush into the US dollar away from sterling and lending to the UK government.

“We’ve seen very sharp moves in financial markets in the last few days, which is the pace of which frankly, was increasing very rapidly. And we were moving into conditions that were if not disorderly, frankly, bordering on disorderly let me put it that way,” Andrew Bailey told journalists.

The Bank of England Monetary Policy Committee had an emergency call this morning so that rate cuts and further “quantitative easing” could be agreed and announced, with the Bank needing to be “on the offensive” because: “We can’t wait for the hard economic data it will be too late by then”, he said.

He said he had seen a range of private forecasts about the economic impact of the current crisis: “We don’t have a precise forecast – every picture we look at has a very sharp V in it”.

The governor also partly blamed rumours that appeared to emerge from Westminster of a shutdown to London for adding to the volatility in markets that saw sterling fall 5% against the dollar. Such a shutdown would be likely to impact on the functioning of the City.

He said: “I do have to say that, you know, there were rumours going on the market this time yesterday that there was going to be a lockdown in London. And I’d observe that did cause market prices to start moving around at that point.

But I think the government has been clear, and it’s clear that that is not the intention at the moment.”

The governor also said that he had already intervened to try to get loans to businesses to keep people in employment, and he said the Bank had its thinking cap on as regards further monetary boosts it can make.

He reiterated his lack of enthusiasm for zero or negative interest rates because of their impact on the banking system’s capacity to lend, and suggested that was the reason for limiting the cut to an unusual 0.15% (rather than the usual 0.25% or 0.5%) to a record low of 0.1%.

The key Monetary Policy Committee will meet again next week.

What the Bank of England’s emergency base rate cut to 0.25% means for borrowers

• The Bank of England announced an emergency cut of 0.5 percentage points

• This is the biggest cut since the financial crisis in 2008

• The bank rate is one thing that affects how much banks pay savers and charge borrowers

The Bank of England has slashed its base rate by half a percentage point to 0.25 per cent, the steepest rate cut since the 2008 financial crisis. It said the emergency cut, the first reduction since August 2016, was to counter the ‘economic shock’ of the coronavirus outbreak. After two years at 0.75 per cent, it means the rate is back to an historic low.

The Bank of England announced yesterday it would cut its base rate to 0.25% from 0.75% The Bank’s base rate – officially called the bank rate – determines what it pays to Britain’s banks when they hold money with it. In turn, this can affect how much those banks pay savers or charge borrowers, be they taking out credit cards, personal loans or mortgages.

If the bank rate changes, banks usually adjust their own interest rates, though with many savings and mortgage rates at all-time lows there is less room for manoeuvre.

So are mortgages going to get even cheaper?

Andrew Montlake, director of mortgage broker Coreco, said: ‘For a central bank to cut rates on the morning of a Budget is an extraordinary move that reflects the gravity of the Covid-19 situation unfolding.’

The move follows announcements from banks including NatWest, Lloyds and Royal Bank of Scotland that they would offer repayment holidays for mortgage customers affected by coronavirus. Montlake added: ‘This takes things to a whole new level. Borrowers on a tracker rate will see an immediate benefit but savers will inevitably feel the squeeze.’

Lloyds Banking Group announced those on mortgages which track the bank rate or are on a reversionary rate will see a reduction of 0.5 per cent by 1 April.

‘Strangely this does not necessarily mean rates will come down as lenders will be pricing in the fact that their own staff levels may be low in the weeks and months ahead and they may not be able to cope with the increased demand’, Montlake said.

The Bank of England’s drastic rate cut marks the first time since 2016 that rates have been cut, and the first emergency cut since the 2008 financial crisis ‘Lenders will be in a tailspin as they seek to get their heads around this drastic move from the Bank of England. We are living in truly unprecedented times’.

‘On a commercial level, this emergency rate cut by the Bank of England will put even more pressure on lenders that are already struggling with slim margins.’ Mortgage rates are currently at near-historic lows, especially on deals where homeowners lock themselves in for 10 years.

Those currently on fixed-rate mortgages will obviously not see an effect until they come to remortgage, but when they do the rates they are paying could fall, if the base rate is not adjusted again before then.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: ‘This is a bold and decisive move from the Bank of England. ‘Swap rates – which banks use to price mortgages – have tumbled in recent days and both the reduction in base rate, plus lower swap rates, will lead to even cheaper mortgage products.

‘We would expect five-year pricing to fall close to its previous record low of 1.29 per cent in 2017. ‘The big question is could they fall below 1 per cent?’

However, Laura Suter, personal finance analyst at investment platform AJ Bell, said: ‘Mortgage rates are already near record lows and it’s unlikely providers will be able to cut them much more – let alone pass on the entire rate cut. ‘The exception is those on tracker rates, who will see a near-immediate effect on their monthly repayments.’

By GEORGE NIXON FOR THISISMONEY.CO.UK
PUBLISHED: 07:32, 11 March 2020 | UPDATED: 17:39, 11 March 2020

Tax and legal changes you need to know about if you’re a private landlord

From electrical safety tests to capital gains tax, here are the things to look out for

Martina Lees
Friday February 28 2020, 12.01am
The Times

● Legal changes will hit landlords this year, none more so than losing the right to take back their properties automatically at the end of a tenancy.
This right, granted under Section 21 of the Housing Act 1988, sparked the buy-to-let boom. The government has pledged to abolish such “no-fault evictions” in its upcoming Renters’ Reform Bill, while also giving landlords more rights to regain their property through the courts. Details have not yet been published on how this would work.

● Electrical safety tests will be required for all new tenancies in England from July 1. An engineer must test electrical installations, including wiring and switches (inspections cost £160-£300), and any faults must be fixed. Landlords must give tenants the report, which is valid for five years, before they move in, or face fines of up to £30,000.

● Tax relief cuts on mortgage interest will be fully phased in from April 6. Landlords earning more than £50,000 will then be able to claim a flat tax credit of 20 per cent on all their loan costs.

● Capital gains tax will hit accidental landlords harder. If you sell a rental property that you used to live in, you will be taxed on the amount it went up in value after you moved out, although you do get a grace period. From April 6 this period will be halved from 18 months to 9 months. Accidental landlords will also no longer get lettings relief, a tax break that exempted up to £40,000 of their former home’s gain in price (up to £80,000 for married couples).

● Minimum energy efficiency standards (MEES) will ban landlords from letting homes with the lowest efficiency ratings of F or G to existing tenants from April 1. The rules have applied to new lets in England and Wales since 2018. Landlords should check a property’s rating on its energy performance certificate (EPC) and ask an assessor what you can do to improve the rating to at least E.

● The tenant fee ban, which kicked in for new tenancies last year, will apply to existing lets in England from June 1. Although the law caps deposits at five weeks’ rent (where the annual rent is less than £50,000, and six weeks’ rent where it is more), landlords will not have to immediately refund tenants who have paid a higher deposit — only when they renew their contract or move out. They will no longer be able to charge existing tenants for professional cleaning or gardening, as long as they return the property in the same state it was in when they moved in. They can only be charged for the costs of changing or ending the contract early on their request, breaching it or replacing lost keys.

From gifted deposits to guarantor mortgages: how to help your child buy a home in 2020

First-time buyers rely on ‘bank of mum and dad’ as average age hits 33
By Stephen Maunder, Which? 22 Feb 2020

First-time buyers around the country are seeking help from the ‘bank of mum and dad’ as high property prices lock them out of home ownership. The good news for parents is that this help can come in many forms, from gifted deposits to joint and guarantor mortgages.

Here, we explain the challenges facing first-time buyers in 2020 and offer advice on how you can give your child a boost on to the property ladder.

Why first-time buyers are getting older

A new report by the Mojo Mortgages has uncovered quite how much harder it is for first-time buyers today compared with 50 years ago.
The online mortgage broker claims that first-time buyers in 2020 need to borrow 18 times more than those in the 1970s, and that the cost of a first home has increased from four times the average salary to eight times. These affordability issues have resulted in the average first-time buyer age rising from 25 to 33 in the past 50 years.

First-time buyers relying on ‘bank of Mum and Dad’

In such a difficult market, cash-strapped buyers are increasingly relying on help from their parents and grandparents.
And one of the most common ways parents help their children is by gifting them some or all of the money for a house deposit.
Research by Habito found that 40% of first-time buyers are now gifted cash by a family member, with this figure rising to 60% in London.

Region and percentage of buyers given a cash gift
London 60%
South East 45%
West Midlands 35%
South West 33%
Scotland 32%
North West 31%
Yorkshire & The Humber 28%
East Anglia 27%
Wales 24%
North East 24%
Northern Ireland 13%

Source: Habito, February 2020.

Should you gift your child a deposit?

Gifting a deposit might seem like a straightforward way of helping your child, but you will need to think about any tax implications.
That’s because cash gifts of more than £3,000 in any one year could be subject to inheritance tax (IHT) if you die within seven years of making the gift.
Even if that’s unlikely to be a concern for you, holding off gifting a deposit could prove be a costly decision.
A cross-party group of MPs has proposed an overhaul the IHT system, including introducing a flat 10% tax rate on gifts of more than £30,000.
If you do decide to give your child money for a deposit, you’ll need to provide a letter confirming you provided the cash and that it won’t need to be paid back.
Some lenders may also require you to sign a declaration that you will have no legal interest in your child’s property.

Key points:
Gifting your child a deposit will allow them to take out a mortgage on the open market.
With 90% and 95% mortgages dropping in cost this can be a simpler and more cost-effective option than tying yourself into a guarantor or joint mortgage – if you have the money to spare.

Guarantor mortgages
An alternative to gifting cash is to use your property or savings to help your child get on to the ladder with a guarantor mortgage.
Guarantor mortgages are sometimes described as 100% mortgages, as many don’t require the borrower to put down a deposit.
Instead, the parent will either lock up cash in a savings account with the lender or agree to have their property used as collateral if the child defaults.

Option 1: Using your savings as security These deals generally require either 5% or 10% of the cost of the new property to be placed into a savings account with the lender for a set number of years (three and five years are the most common periods).
How much interest is paid on savings varies from deal to deal, and some products don’t pay any interest at all.
Key points: These deals allow you to keep hold of your savings rather than giving them away, but you’ll be locking your cash up for a number of years, and not necessarily with a good interest rate. Your child will also have far fewer mortgage options than on the open market.

Option 2: Using your property as security These deals involve a lender securing a charge against the your home in case your child defaults on their mortgage.
The rules vary by lender. Some will set a 10% charge against the home, while others will set a charge of as much as 25%.
The charge is then released after a set number of years or once your child has paid back a big enough proportion of the mortgage.
You’ll usually need to have a certain amount of equity in your property, but again this varies by lender.

Key points: Using your property as security can avoid the need to part with any cash, but it puts your home at risk if your child defaults on their mortgage. Again, these deals aren’t particularly common, so there’ll be less opportunity to shop around compared with the open market.

Joint mortgages

Joint mortgages allow you to buy a property with your child.
This could significantly boost your child’s chances of getting a mortgage as your income will be taken into account, but can be an expensive and risky.
The biggest concerns are that your name will be on the deeds of your child’s home, so you’ll need to pay the stamp duty surcharge if you already own a property, and you’ll also be jointly liable for the mortgage repayments.

Key points: Joint mortgages are a good way of boosting your child’s borrowing power, but stamp duty implications make this a less-attractive option.

JBSP mortgages

Joint borrower sole proprietor (JBSP) mortgages offer an innovative way of buying a property with your child but without needing to paying the stamp duty surcharge
JBSP deals take into account the financial circumstances of both you and your child when assessing affordability, but only your child will be named on the property deeds.
This mean you won’t officially own any share of the property. You will, however, be named on the mortgage and will be considered jointly responsible for repayments.

Key points: JBSP mortgages are a good idea in theory, but they’re not widely available. Lenders are more likely to offer these deals to first-time buyers in industries where their salary is likely to increase significantly. Banks will also take into account your age at the end of the mortgage term, so older parents may be ruled out.

Tips for parents helping first-time buyers

If you’re considering one of the mortgage options above, consider taking advice from a whole-of-market mortgage broker, who can assess your financial circumstances and explain which deals might be most suitable.

You can find more advice in our guide on how to help your child buy a home, which includes 10 key things to think about before handing over money or signing up for a guarantor mortgage.

Which? Money Podcast: buying your first home

In December, the Which? Money Podcast went back through the decades to investigate whether it was once easier to buy your first home, and assessed the difficulties facing first-time buyers in 2020. You can listen to the full episode below, or find it on Spotify, Google Podcasts, and Apple Podcasts.

Cost of buy-to-let mortgages fall year-on-year
13TH FEBRUARY 2020 PROPERTY NEWS, UK
BY RYAN BEMBRIDGE

The cost of buy-to-let mortgages have fallen year-on-year, research from Property Master has found.

The biggest fall was for 5-year fixed rate buy-to-let mortgage offers for 65% of the value of a property, which fell by £48 per month between February 2019 and February 2020 for a £150,000 mortgage.

Angus Stewart, chief executive of Property Master, said: “Another fall in the cost of borrowing is very good news for landlords.

“We know that there are landlords languishing on expensive SVR mortgages as the uncertainty around Brexit and political instability has put them off moving on to a more competitive fixed rate.

“With the current record low rates on offer these landlords should act quickly because if the “Boris bounce” becomes a reality it may allow interest rates to begin to rise back to more normal levels.”

Five-year fixed rates for a £150,000 mortgage for 50% of the value of the property fell year-on-year by £46. Five-year fixed rate offers for 75% of the value fell by £38.

Falls for two-year fixed rate buy-to-let mortgage offers were more modest.

The cost of a typical two-year fixed rate mortgage for £150,000 for 75% of the value of the property was down £25 per month year-on-year and for 65% of the value of a property by £19 per month.

Stewart added: “We are expecting a particularly busy next few months. This April it will be four years since significant changes were made to Stamp Duty.

“The decision by the then government to slap on a 3% surcharge on buy-to-let properties led to a mini-boom as landlords rushed to buy properties to beat the deadline.

“We suspect many of those landlords will be coming to the end of fixed rate mortgages around now and should be pleasantly surprised at what the market is prepared to offer them in terms of a good deal.”

Home ownership among young people rises after decade of decline

Help-to-buy scheme has helped 25- to 34-year-olds get on property ladder, say analysts

Joanna Partridge The Guardian

Thu 23 Jan 2020 18.12 GMT Last modified on Thu 23 Jan 2020 19.35 GMT

The proportion of 25- to 34-year-olds who own their own home in England has increased for the first time in over a decade, according to official figures.

The latest English Housing Survey found that 41% of people in the age bracket live in a home they own, with the same proportion living in private rented accommodation. This is the reversal of the trend seen in the decade after 2003-04, during which the number of young owner occupiers fell from 59% to 36%.
the annual report from the Office for National Statistics found that the overall number of homeowners remained the same for the past six years. Home ownership peaked at 71% in 2003 and has steadily declined to 64% since then, which equates to 15m owner-occupier households of an estimated total of 23.5m.

Housing analysts said the government’s help-to-buy scheme, which launched in 2013 and gave financial support to homebuyers, had contributed to the increase in young people getting on the property ladder, along with stamp duty relief for some first-time buyers.

“Help-to-buy and stamp duty relief are behind the march of the first-time buyers, who will be powering a recovery in home ownership in this age bracket,” said Joseph Daniels, the founder of Project Etopia, which develops modular homes.

“Falling home ownership among the young still threatens to become a national crisis rooted in high property prices and stretched affordability but the tide has finally started to turn,” he said.

“It will take considerable time and momentum until owner occupancy among younger people returns to the 59% seen in 2003-04.”

Privately rented accommodation now accounts for 4.6m households, or 19%, which has remained unchanged for six years. But this sector is double the size it was in 2002.

The housing secretary, Robert Jenrick, welcomed the rise in the proportion of young people owning their home. However, the figures also showed an increase in overcrowding in the social rented sector, where people rent largely from councils or housing associations at a rate pegged to local incomes.

Overcrowding, which is measured by whether households have fewer bedrooms than notionally needed for its occupants, remains at its highest rate in the social rented sector, with 8% of that group living in overcrowded accommodation.

Polly Neate, the chief executive of the housing charity Shelter, said: “More and more families are crammed like sardines into homes that are too small for them because they can’t afford to rent anywhere bigger.

“The odds are stacked against struggling families. What this country desperately needs is an alternative to private renting, which is why Shelter is urging the government to build a new generation of genuinely affordable social homes.”

First-time buyer guide: how to get a mortgage and buy a house

Whether you’re still saving a deposit or have started viewing, here’s everything you need to know about getting on to the property ladder, says Ruth Jackson-Kirby

The Sunday Times, January 26 2020, 12:01am

If you’re finding it hard to get onto the property ladder, you are not alone. Government stats show that the average first-time buyer is 33 years old and the biggest hurdle is saving for a deposit — which on average now exceeds £50,000, according to Moneysupermarket.com. While that is a lot of money, don’t abandon hope: there is a lot of help available if you know where to look.
From parental help to government schemes to buying with friends, this guide outlines the ways you can finance your first home, as well as giving you some helpful tips for viewings and conveyancing.

I need help saving for a deposit

Nearly a quarter of first-time buyers surveyed by the online broker Habito said a family member provided more than 80% of their deposit. The Bank of Mum and Dad, as it is dubbed, is expected to have provided £6bn this year to help with deposits, according to Legal & General.

“For many first-time buyers, parental help is crucial,” says David Hollingworth, from the broker L&C Mortgages. “In many cases that will be in the form of a cash gift to boost their deposit funds.” Be aware that lenders prefer it to be given as a gift rather than a loan. “If a lender accepts parental loans, it will factor any monthly repayments into the affordability assessment, which could put a dent in the amount you can borrow.”

Patrick Connolly, a financial planner at Chase de Vere, recommends using the government’s help to boost your deposit. “The Lifetime Isa can play a valuable role for those who are trying to get on the property ladder,” he says. “They can be opened by people aged between 18 and 39, who can save up to £4,000 each year, benefit from a 25% government bonus and access their money tax-free.”

You can use a Lifetime Isa towards a home as long as the property costs £450,000 or less, you have been saving into the account for at least 12 months and you are buying with a mortgage. A couple who saved up £20,000 each in Lifetime Isas would get a government bonus of £10,000. Save £330 a month and you’d have a £50,000 deposit between you in less than five years.

If your property’s total value is less than £300,000, remember that you won’t have to save up extra to pay stamp duty, as first-time buyers are exempt up to this amount.

Myth buster: You can’t buy a home unless you have a huge deposit. Several lenders offer 95% mortgages meaning you only need a 5% deposit – that’s £9,888 for the average first home.
By numbers
£197,760
The average cost of a first home, according to HM Treasury
£50,174
The average deposit buyers put down on their first home. (Moneysupermarket.com)
33
The average age of a first-time buyer. (Government figures)

I only have a small deposit and I can’t borrow much

If this is the case, there are a number of government schemes that could work for you, of which Help to Buy is the best known. This is where the government lends you up to 20% of the value of the home you want to buy (40% if you are buying in London). You need to have a 5% deposit, you cannot own another property and the house must be worth less than £600,000.

The loan is interest-free for the first five years, but after that you’ll pay 1.75% interest that increases with RPI plus 1% every year. You only repay the interest on the loan – the equity is repaid when you sell your home or after 25 years. “It’s important that those using the scheme consider whether or not they can afford the loan repayments on top of their mortgage when the interest-free period comes to an end,” says Rob Houghton from Reallymoving.com.

Help to Buy can only be used on new-build homes, which are usually more expensive than buying a resale. Reallymoving.com says Help to Buy properties tend to sell at a 10% premium.
Another option is shared ownership. This is where you buy a portion of a property and rent the rest from your local authority or a housing association. You buy a stake in the property — usually 25% to 75% — then pay a reduced rent on the rest.

For example, £56,000 will buy you a 40% share in a two-bedroom penthouse in central Newcastle, according to Sharetobuy.com. It calculates that you would need a £2,800 deposit, then your monthly costs would be £618: £270 for your mortgage, £219 rent and a £129 service charge to maintain the communal areas.

“For many, it makes financial sense as it reduces the size of a deposit, purchasers own a share of their home and they can build up equity if they wish, while the monthly cost can be cheaper than an equivalent privately rented home,” says Matt Bartle, director of products at Leeds Building Society.

Each housing association has different eligibility criteria for shared ownership. They are usually restricted to people with a household income of less than £80,000 (£90,000 in London).

The drawback with shared ownership is the ongoing costs. While you may only own a share of the property, you are liable for the full maintenance and repair costs. You can gradually buy more of the property until you eventually own it outright through a process called “staircasing”, but you will need to pay fees each time you increase your share for things such as conveyancing and valuations.

“First-time buyers need to go in with their eyes open,” says Paula Higgins, chief executive of the HomeOwners Alliance. “For example, selling a shared ownership property is not straightforward and subletting is usually forbidden, even if you just want to let out the spare room.”

Alternatively, you could opt for a Rent to Buy property. You pay a subsidised rent (typically about 80% of the market rate) for up to five years with the option to buy the property, but you are meant to use the cut-price rent as an opportunity to save for a deposit.
“None of the government schemes is perfect,” says Angela Kerr, director of the HomeOwners Alliance. “Buying on the open market is always the preferred option if you can.”

Myth buster: Help to Buy is for first-time buyers only. Until April 2021 you can use a Help to Buy equity loan even if you have owned property before.
By numbers
£12,800
The average deposit paid for shared ownership (MHCLG)
221,405
The number of properties bought using Help to Buy equity loans up to March last year, with an average loan of £56,300 (MHCLG)
£2,360

The average amount first-time buyers save from avoiding stamp duty (AJ Bell)

Can I buy with a friend or family member?

If your family don’t want to hand their savings over, or can’t afford to, you could look at family mortgages. Offered by several lenders including Barclays, Lloyds and Halifax, these are linked with a family member’s savings account, which acts as a deposit so you can get a mortgage. The money is still theirs and they will get it back with interest as long as you make all your repayments on time over a few years.

You could also consider buying a home with a friend. Typically, mortgages can be taken out by up to two people, but more lenders are allowing mortgage applications from up to four people. By pooling your deposit and including more incomes on your application, you could borrow more to get a home.

Just make sure you consider the legal implications of buying a property with friends. During the buying process, ask your solicitor to draw up a Declaration of Trust. This will reflect how much you each put into the property and what you will each get back if and when it is sold.

How do I get a mortgage?

A mortgage, or home loan, is the biggest financial commitment you are ever likely to make and it typically lasts for 25 to 35 years. How do you make sure you are able to borrow the amount you need at the best possible rate?

This will depend on how much you earn. There are numerous online calculators that will give you an idea of the amount you can borrow. “A rule of thumb for borrowing amounts is likely to be around 4 to 4.5 times your income,” Hollingworth says.

Start thinking about your mortgage application at least six months before you apply. Check your credit score at Experian, Equifax or TransUnion. If it’s low, take some simple steps to improve it: check and correct any mistakes; reduce the amount of credit you have access to if you aren’t using it; and register to vote, as this can add 50 points to your credit score, according to Experian.

Lenders are looking to see that you have reliably repaid debt in the past. “If you don’t have a credit card, apply for one, make at least one purchase a month and set up a direct debit to pay the account in full each month,” says Raymond Boulger, senior mortgage technical manager at John Charcol.

Also, go through your statements and take an axe to your spending. When you apply for a mortgage your lender will assess how much you can afford to repay each month by studying your outgoings. Cancel that expensive gym membership, shop around for cheaper insurance and curb your shopping.

When it is time to apply, speak to a mortgage broker. Over a five-year period, a 2% mortgage rate on a £200,000 25-year mortgage would cost you £1,750 more than a 1.7% rate, so getting help finding the best deal will pay off. Some brokers are free and make a commission, but others will charge a fee, usually about 1% of the mortgage value.

Myth buster: LTV stands for long-term value
A survey by the Home Owners Alliance found that 76% of buyers thought LTV stood for long-term value, meaning the expected property value increase over time. It is actually an acronym for loan to value and represents the percentage of the home’s value that is borrowed. For example, an 80% LTV mortgage means you’ve put down a 20% deposit and the mortgage is covering the other 80% of the price.

By numbers
£145,702
The average amount borrowed by a first-time buyer (UK Finance)
80%
The average loan to value for a first-time buyer’s mortgage (UK Finance)
£723

The average monthly mortgage repayment (Santander)

How do I start the buying process?

It is finally time to start viewing properties. This is the fun part, but don’t get carried away. “Having waited so long to save a deposit, it’s important not to rush the final decision — take your time when viewing a house and try to resist the pressure to commit before you’re ready,” says Ben Leonard, chief executive of FirstHomeCoach.

“The more information you have on the property, the better equipped you are to make an offer. Don’t be shy: ask as many questions as you like, view the house more than once and at different times of the day, take pictures on your phone and make notes as you go.”

Before you make an offer, ask the agent whether they recommended the guide price or the vendor. “You might not get an answer, but their response will be a sure indication as to whether the agent has confidence in the price being asked,” says James Mackenzie, head of Strutt & Parker’s country department.

Once you’ve had an offer accepted, the legal process takes over. “Do not sit back and assume it will all be taken care of by your solicitor,” says Carol Peett, managing director of West Wales

Property Finders. Contact them once a week for an update; if they are waiting for anything from the vendor, urge the estate agent to chase them up. “Nearly a third of purchases fall through between an offer being accepted and exchange, and this will help ensure yours is not part of this statistic.”

Make sure you carefully read through all the documents your solicitor sends you. A lot of first-time buyers purchase leasehold properties, which adds an extra dimension to the legal work. “Don’t rely on your solicitor to check the length of the lease,” Kerr says. “Leases below 80 years are a problem and they can be costly to extend. You also need to have owned the property for two years before you are eligible to do so. Leases under 60 years are best avoided.”

Myth buster: You don’t need a survey if the mortgage company is doing one
When mortgage lenders carry out a survey on a property, it is simply a valuation survey. This means it is merely checking the property is worth what you are paying for it, and may not spot problems.

By numbers
6
The number of months it takes on average to buy your first home (Reallymoving.com)
£850–£1,500
The average legal fees for buying a property (Home Owners Alliance)
4%

The average amount below asking price that properties end up selling for (Zoopla)