This article was published on August 17th, 2017
Whether you’re looking to buy a new home now or in the future, it’s very likely that you will come across the terms ‘right to buy’ and ‘help to buy’.
What most people don’t realise is that although the terminology sounds very similar, both schemes are in fact totally unrelated.
To help clear up the issue and save you time when you are looking for potential funding to help you buy a home, we’ve put together a guide to define the differences between both schemes, starting with ‘right to buy’
A ‘right to buy’ transaction allows you to purchase your own council house if you are currently a council tenant. The scheme allows council tenants to purchase their home at a discounted rate. Tenants who live in a former council house that was sold to a private landlord may also have the ‘right to buy’ as they were living in the house before it was sold, this process is called ‘preserved right to buy’.
If eligible for the ‘right to buy’ scheme the tenant can receive a discount of up to 70% off the market value of the property at the time of purchase. The maximum value of any discount is up to £104,900 in London and up to £78,600 elsewhere in England
In order to determine the size of the discount that a tenant is eligible for, three key factors are taken into consideration.
The discount is based on how long a person has been a tenant with a public sector landlord, what type of property they are buying, for example, a flat or house, and finally the market value of the property.
The ‘help to buy‘ scheme was first introduced by the Government in 2013. Its purpose is to allow people an easier route onto the property ladder without having to save such a large deposit.
In order to take advantage of the ‘help to buy’ scheme, you must have a deposit of at least 5% and the house you want to purchase must cost less than £600,000. The house must also be your main property, you cannot buy the house and then rent it out.
Once you have your 5% deposit, the Government will give you an equity loan up to 20% of the cost of your new home, meaning you now have a much healthier 25% deposit for a new home.
This makes it easier to access a wider range of mortgage options from qualifying lenders, with the possibility of lower mortgage repayments for you in the future.
The 20% equity loan is available to both new buyers and those moving home, but there is a catch. Buyers are restricted to new build properties only.
One thing that you should also take into account when you are considering taking advantage of the ‘help to buy’ scheme is how much the repayments will cost on the equity loan.
The 20% loan that the Government provides remains interest-free for the first 5 years, and then from year 6 onwards, you will be charged at a rate of 1.75% which rises by 1% each year after that until the loan is fully repaid.
However, if this all sounds a little too daunting and you don’t currently feel comfortable buying a new home, the ‘help to buy’ scheme has another branch that you can take advantage of.
A ‘help to buy ISA‘ is aimed at those who aren’t quite ready to take their first step onto the property ladder, but they are seriously considering it for the future. The ISA is a type of tax-free savings account which is designed to help future home buyers save a deposit quicker.
For every £200 that you put into the ‘help to buy ISA’, the Government will add an extra £50 (up to a maximum of £3000) which will be paid to your conveyancing solicitor when you are ready to purchase your new house.
Again, there is a slight catch. Those using the ‘help to buy ISA’ can only use the account to purchase a property worth £250,000 or less (£450,000 if you want to buy a property in London).
In order to be eligible for the ‘help to buy’ scheme you must be at least 16 years old, be a UK resident with a valid National Insurance number, be a first-time buyer and you must not own a property anywhere else in the world at the time you want to buy your new home.
Also, as mentioned earlier you must use the house as your main place of residence, the property cannot be bought and then rented out or used as a holiday home.
If you are considering purchasing a property and would like more information about either the ‘help to buy’ or ‘right to buy’ schemes or have questions about conveyancing then contact our team today.
Thorneycroft conveyancing solicitors provide comprehensive, cost-effective conveyancing services in Macclesfield, Buxton and Holmes Chapel. Our conveyancing process is designed to safeguard your interests at every stage of the transaction, whether you are buying, selling or re-mortgaging your property.
Our specialist property conveyancers offer a fast, friendly and efficient service and you will have a dedicated person dealing with your transaction from start to finish. In order to ensure that all processes run as smoothly as possible, our conveyancing team will keep in regular contact with you at each stage of the transaction.
Thorneycroft Solicitors has been granted Conveyancing Quality Scheme (CQS) accreditation by the Law Society. The CQS provides a nationally recognised quality standard for residential conveyancing solicitors, ensuring that you as clients can be assured that you will receive a quality service from fully qualified and experienced solicitors.
To speak to a member of our team call us for free on 03300 580 118 or complete our online enquiry form and we will call you back at a time that better suits you.