25 February 2016
Buying a house is a significant commitment and is not without its risks both financially and personally so it is wise to take legal advice at an early stage to protect your interests.
Saving towards a deposit
If you are saving towards your first home, then you might want to consider a designated Help to Buy ISA.
These savings accounts earn interest at a rate set by the ISA provider. In addition the government will give you a bonus of 25 per cent, up to a maximum of £3,000, when you use the funds to buy a qualifying property.
Under Help-to-buy, there are two schemes which can help you fund a house up to the value of £600,000:
- an equity loan scheme, which offers an interest free government loan of up to 20 per cent of the value of the property for the first five years – you need to put in a five per cent deposit and will need to get a mortgage for the 75 per cent balance; or
- a mortgage guarantee scheme, where the government will guarantee up to 15 per cent of your mortgage loan, and you also need to put in a five per cent deposit.
Both schemes are limited to fund the purchase of a property up to the value of £600,000. It must be for your only home and the assistance is not available for investments in buy-to-let or second homes.
The equity scheme is only available for new build properties. Your solicitor will carry out searches about the land it is built on and make sure you are provided with NHBC guarantees on completion.
The mortgage guarantee scheme applies to new and existing homes. For existing properties, it is important that your solicitor checks the land registry title for any title defects and will also check that any alterations have planning permission and/or building regulation approval.
Both schemes are now available to both first-time buyers and existing home owners. You will need to have a relatively clean credit history as anyone with a county court judgment for over £500 in the previous three years will be automatically barred. Your solicitor can look at your credit history and advise you on any adverse credit.
If you are not married and intending to pool your finances to raise a deposit, you should also consider making a will. This will record your intentions for who you would like to inherit your share of the property when you die.
The equity loan is interest free for the first five years, and after that there is an increasing fee payable yearly. This does not go toward repaying the loan itself so you will have to make separate arrangements to do this. This loan can be repaid early subject to conditions and fees.
The equity loan has to be repaid in full when the property is sold or your mortgage ends, as a percentage of the property’s market value at that time. This may be higher than the original loan value. If you have made home improvements that added to the increase in value of the property, your solicitor may be able to negotiate to have the figure reduced. One option may be to remortgage to repay the loan.
The mortgage guarantee scheme only lasts for the first seven years. During that time, if you do not keep up your mortgage repayments and your house is repossessed, you will lose your deposit first before the guarantee kicks in for the lender.
Under the Help-to-buy schemes you will still own your property and be free to sell when you want, but you should take legal advice to make sure you are not tied to onerous conditions that you will regret.
Based in Stoke-on-Trent, Staffordshire, our specialist residential property solicitors provides conveyancing services throughout Staffordshire and Cheshire. To find out more, contact 01782 577000 or contact:
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The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.