New build homeownership schemes: What’s on offer? a guide for brokers (3 of 4)
New homes are popular with buyers for good reason. They can enjoy the benefits of a brand new property. They may even have some input into the fixtures and fittings if buying off-plan, so they can tailor the home to their preferences. In addition, running costs will almost certainly be lower than buying an older property. Not only does this save money every year on fuel costs, but an energy-efficient home is also future proofed against potential new rules as the UK moves towards its net zero targets. Of course, there’s a premium to pay for a new build property but there’s plenty of support schemes to give buyers a helping hand. In fact, the wide choice of homeownership schemes can cause confusion for buyers without the guidance of a broker to help them work out what best meets their needs.
Here we run through the main options for your new build clients:
Help to Buy
You may have already arranged mortgages on purchases through the Help to Buy scheme, which has been running since 2013. Many lenders, including Aldermore, support the state backed shared equity scheme, which is now exclusive to first time buyers purchasing a new build property. The government provides up to a 20% equity loan, the first time buyer puts in at least 5% as a deposit and the rest is made up with a mortgage. The equity loan is interest free for five years, after which they start repaying the loan and interest is incurred.
Help to Buy has been hugely popular, but the scheme is set to end in March 2023, and this means any properties purchased under it must have been built and the sale completed by then. So, the effective end date is likely to be much sooner. If you have clients that can benefit from Help to Buy, they need to put in an offer quickly.
The other major homeownership scheme is Shared Ownership, where the buyer purchases a share of a new build or existing property (usually from a housing association) and pays an affordable rent on the portion they don’t own. Some shared ownership options allow people to buy extra portions of their home over time, as and when they can afford it. The Government plans to make shared ownership more flexible, so that owners can staircase in smaller instalments.
The Right to Shared Ownership scheme gives council or housing association tenants the right to purchase a home under the shared ownership model and is available on new homes delivered through the Affordable Homes Programme.
The First Homes scheme is new and there aren’t yet many properties available through it, but the Government expects it to eventually provide 10,000 homes a year. First time buyers benefit from at least a 30% discount on the market value of a new home, up to a maximum value of £250,000. To be eligible they need to have a combined annual household income of maximum £80,000 (or £90,000 in Greater London) and they can’t put down a deposit of more than 50% of the discounted purchase price. The discount stays with the property, so when it’s sold on to another first time buyer, they need to sell it at the same discount they initially received.
Help to Build
The newest homeownership scheme is Help to Build which aims to make it easier for self builders and custom builders to afford a property. Custom build is where the buyer commissions a property to be built to their requirements on a prepared plot, so they still make a lot of decisions about their new home. Your client puts down a deposit of at least 5%, and the Government contributes up to 20% as an equity loan, with the remainder taken as a self build or custom build mortgage. The equity loan is interest free for five years after which it accrues interest.
The Government is initially funding the scheme to the tune of £150m and says it could deliver 30,000-40,000 new homes a year.1
Privately funded models
In addition to the state-backed homeownership schemes, there are some privately funded models that can help your client buy a new build property.
They’re all different and range from private shared equity schemes, similar to Help to Buy, to private shared ownership models*. There’s also an insurance backed initiative – Deposit Unlock – that enables buyers of new builds to purchase a home with just a 5% deposit.
More private schemes are likely to be launched to help to fill the gap left behind by Help to Buy. But, of course, each will have its own benefits and drawbacks and it’s important you and your client understand the small print.
The new build sector is only going to grow as demand for homes continues to outstrip supply. There’s plenty of support to help your clients overcome the deposit barrier, affordability barrier, or both.
Make sure you’re confident in your knowledge of what’s on offer and the pros and cons of each scheme, so you can help them find the best route into a new home.
Read the other articles in our new build series:
New build basics for brokers: a guide for brokers (1 of 4)