Property & Mortgages

Real estate investment UK options for first time buyers

Real estate

Here are the options that that make first time homeownership journey easier

The UK’s real estate sector is going through a downturn over the past few years – since 2016 – when the country voted to leave the European Union. As the UK’s departure from the EU, or brexit, referred to as commonly, continues to be a long-drawn process and without any solution in sight at present, and continues to drag the country’s real estate sector along with it. This uncertainty is having an adverse impact on real estate investment UK. The real estate sector is keeping its fingers crossed over brexit and waiting for it to settle one way or another but a resolution to brexit crisis keeps moving away, extending from one deadline to another. This has created a period of instability for the sector and taken a toll on real estate investment UK.

All this has created a lack of supply of homes coming onto the market as sellers hold back on their plans to sell. This has resulted in a housing crisis in the country as sellers wait for the brexit solution to unfold. As a result, rising prices have made the idea of buying a home out of bounds for many. This has proved to be especially difficult for those looking to get onto the property ladder for the first time. As buying a home requires a hefty deposit and expensive mortgages, the idea of buying a home of their own, seems to be increasingly difficult to them.

However, not everything is not lost for the first time buyers as there are options to explore which make the idea of buying a home easy. These include the government-backed schemes which make it easy for the first time buyers to begin their journey to homeownership. These schemes include the Help to Buy ISA, Help to Buy Equity Loan and Shared Ownership schemes. They have been designed to encourage home ownership with help from the government.

However, not everybody is aware of these schemes yet, which means they may be missing out on a vital opportunity to buy a home through these schemes.

As a new research from online mortgage broker, Trussle, revealed that almost half of the adults in the UK are still unaware of the schemes that help buyers in buying their first home.

The mortgage broker surveyed more than 2000 people across the UK as part of its study, which revealed a lack of understanding among people regarding these schemes. There appeared to be widespread confusion over the schemes, as many of them haven’t even of Help to Buy ISA, Help to Buy Equity Loan and Shared Ownership schemes.

Trussle found that while 53% of people were aware of the home ownership schemes, 47% were completely unable to identify them. In fact, just one-in-five people across the UK were able to correctly name at least one of the three main schemes.

Overall, nearly two-thirds (58%) of people believe home ownership schemes are too complicated to understand and among 18-34-year olds, this figure rises to 64%. Just 8% of people thought that the schemes were easy to understand.

Now, Trussle has designed a tool to help savers understand all of the available home ownership schemes, keeping the prospective buyer in mind. It offers guidance on the criteria for each type after confirming eligibility.

Trussle has identified the key features of each, highlighting the aspects that people are struggling to understand the most:

Help to Buy ISA

This scheme helps the first time buyers with their deposits for a home. It’s only available to first-time buyers. But the survey found that just two in five (43%) are aware of this, and only 17% know that one should be 16 years old to qualify for the scheme.

Help to Buy equity loan

This facility is available to first time buyers under which potential buyers have to make only a 5 per cent cash deposit, with the Government offering (a time limited) an interest free loan worth up to 20% of the home’s price outside of London. With this scheme in place, the buyer only needs a 75% mortgage. Keeping with the expensive real estate prices in London, the government provides a loan worth 40% of the home’s value to the would-be buyers which is free of interest for 5 years. At the end of this five-year period, the buyers need to pay an interest on the equity loan debt at 1.75%.

Despite such attractive facilities, only 48 per cent of the UK population are aware of the fact that a 5% cash deposit is required to buy a home under the scheme. Even more, less than a third (28%) are aware that properties can cost as much as £600,000 in London, to reflect the capital’s higher property prices. So far, the scheme has been availed of by more than 150,000 properties.

The shared ownership option

Under this option, which is run in conjunction with housing associations, the would-be buyers buy a stake in a Shared Ownership home while paying rent and service charge on the part they don’t own. A buyer needs to be 18 years old to avail the benefits of this scheme. Here too, there appeared to be a lack of knowledge among the participants regarding the household income. For the Shared Ownership scheme, household income must be less than £90,000 within London and £80,000 outside of London. Even after this, 68% of people think their household income must be less than £60,000 a year and the scheme can be availed anywhere in the UK.

Ishaan Malhi, CEO and founder of Trussle commented: “This research uncovers the scale of misunderstanding around the existing housing schemes designed to help first-time buyers onto the property ladder. Significant numbers of people feel locked out of homeownership and this lack of awareness around their options is simply making things worse.

The truth is that the complexities around homeownership, including mortgages, present a wider industry problem around clarity.

We’ve built a home ownership tool to help people try and navigate these schemes and find out which they could qualify for. We will shortly be introducing specialist teams of brokers to specifically manage applications via home ownership schemes too – but education for first-time buyers should be more widely accessible. If these schemes were simplified, prospective buyers would be more likely to understand the options available to them, more quickly.”

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