Help with the purchase or co-ownership: how to buy?

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Are you a home buyer struggling to raise your deposit? Don’t worry, help is available. The two main options are shared ownership and Purchase assistance program. Here’s a comparison to help you decide what might be best for you.

What is the purchase assistance program?

Let’s start with the government backed option, Help with the purchase. The government gives you an equity loan, and you put it in the cost of a new construction goods. This is how it works:

  • The government lends you up to 20% of the purchase price (or 40% if you are in London).
  • You only need a 5% deposit instead of the traditional 10-15%.

There are a few advantages to using Buyer’s Aid. Here is a summary:

  • It might be easier to get a mortgage if you only pay a 5% deposit.
  • You don’t have to save that much money to buy a house.
  • If you pay off the loan within five years, you don’t pay interest.
  • Even if the sale of your home fails, Help to Buy can cover another property.

Sounds good, yes? It is possible, but here are some things you should also keep in mind:

  • It is only available on new homes.
  • Purchase Assistance ends in 2023, so this is only an option if you are buy a new house soon.
  • From April 2021, it is only available for first-time buyers.
  • It’s a loan, remember, so you have to pay it back. And if you don’t pay off the loan within five years, you’ll pay interest – which adds up.

Not sure if Buyer’s Aid is right for you? Let’s take a look at shared ownership before comparing the two.

What is shared ownership?

Co-ownership allows you to buy a share in a new property. In other words, you don’t own the whole house – at least not right away. Instead, you own a “share”. So if you buy a 25% stake in the property, you own 5% of the house, and so on.

Does it sound a bit complicated? Don’t worry, it’s actually pretty straightforward. Here’s how typical shared ownership works in practice:

  • You buy a share in a new house.
  • You get a mortgage on the part you own (say 25%) and pay rent on the remaining part.
  • It is possible to increase the size of your share over time. You can optionally own 100% of the property.

Co-ownership has certain advantages:

  • You only need a mortgage for the stock you bought, so it’s cheaper than Buyer’s Aid upfront.
  • The deposit is small – you only pay one 5-10% deposit on the share price, not on the full value of the property.
  • If you decide to move, you can sell your share at any time.
  • In many cases, you won’t pay any stamp duty until you own at least 80% of the house.

That said, there are a few drawbacks:

  • While you can sell your share whenever you want, you should give the housing association the opportunity to buy it from you. It can be a bit restrictive if you are trying to sell quickly.
  • You can only buy homes built specifically for the condominium regime. Thus, there is less flexibility as to which property you can buy.
  • Sometimes it can be more difficult to find a mortgage lender ready to offer a condominium mortgage.
  • There is no guarantee of how much it will cost to buy additional stocks down the line, so it could prove to be more expensive in the long run.

Purchase assistance or co-ownership: what is right for me?

Okay, that’s what we mean by Purchase Assistance and Shared Ownership. But how do you choose between the two? Here are the things to keep in mind:

  • It is cheaper by climb the housing ladder with shared ownership. Even if you can’t afford a large deposit, you can buy a small share and gradually “climb” your way up to full ownership.
  • It is impossible to predict how much the additional actions will cost, as it depends on the current value of the property. So you are giving up some certainty for affordability.
  • Many people prefer the certainty of Buying Assistance. There’s still no need for a big deposit, and if you can pay off the mortgage in five years, you won’t pay interest.
  • Buyer’s Aid gives you full control over your home. You can sell on the open market without having to first offer it to the housing association.

To take with

Purchase assistance or co-ownership? It all depends on your personal preferences. What is important is that you choose the option that you can afford.

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