With the Help to Buy scheme set to close permanently in less than a year, prospective homeowners are beginning to explore the alternative options available. Set to close in March next year, Help to Buy provided homebuyers with the opportunity to purchase new-build homes with a deposit of just 5%.
Introduced in 2013, the program was brought in as one of several measures to restart the housing market, in the wake of the financial crisis of 2008.
Now, prospective buyers who may struggle to come up with bigger deposits as required by major banks (usually 10% to 20%) are being advised to consider alternatives to Help to Buy.
Examples of which include the following:
A lifetime ISA allows savers to pay a maximum of £4,000 per year into their account, which is topped up by 25% by the government. This equates to a maximum annual government bonus of up to £1,000 per year, which over time could make it easier to come up with a mortgage deposit.
Lifetime ISAs can be particularly useful for couples looking to buy properties together, as both partners can take out their own Lifetime ISA and qualify for the maximum government bonus. However, the money saved in a Lifetime ISA can be withdrawn exclusively to buy a first home, or when the ISA holder reaches the age of 60.
Otherwise, all government contributions will be forfeited.
A bridging loan can provide a prospective homebuyer with near-instant access to the cash they need for a mortgage deposit. Bridging finance is issued in the form of a secured loan, taken out against assets of value (usually a home or residential property).
This could be a suitable option when finance is forthcoming and the buyer is expecting some kind of large payment or windfall in the future; for example, the sale of a property, an inheritance payment, or some kind of guaranteed dividend.
Bridging finance is a strictly short-term facility, and should only be used for purposes like these when the full outstanding balance can be repaid within a few months.
For those who are willing to wait a little longer to own their own homes, there is the option of investing some (or all) of their available capital. However, all types of investments carry certain risks, which must be carefully considered before proceeding.
Investments are only worth considering upon the advice of a qualified and experienced professional. Trading stocks, shares and currency pairs on the open market can be tempting, but carry the risk of heavy (if not total) losses.
Always consult with a financial adviser or similarly qualified expert, before investing money in hope of generating returns.
One option available to reduce initial deposit requirements is to consider applying for a guarantor mortgage. This is where another individual (usually one or both parents) acts as a guarantor for the facility. In this case, their income level and financial status plays a role in determining both eligibility for a mortgage and the terms of the agreement.
With a guarantor mortgage, it is often possible to borrow more at a lower rate, and access lower-deposit mortgages. However, those who act as guarantors for the mortgage ultimately become responsible for repayment of the facility, if the main applicant defaults for any reason.
Shared ownership provides an affordable entry-point to home ownership. But as it is a more complicated pathway than outright purchase, it should be considered under the advisement of an independent financial adviser or solicitor.
With shared ownership, you purchase part of the property and rent the remainder. Over time, the share you own in the property gradually increases.
Terms and conditions vary significantly from one shared ownership contract to the next, emphasising the importance of independent expert advice.