Unless you have been in hibernation for the past year, you will have seen in the news recently that the United Kingdom may, or may not, be leaving the European Union on the 28th March 2019. The UK withdrawal is commonly known as “Brexit.” With Brexit has come an awful lot of commentary on what may, or may not, happen to the UK housing market as a result of leaving the European Union. Some commentary has suggested there may be a house price slump of up to 20% over the next year, with others suggesting a rise of 5%. With such varied news it begs the question, is now a good time to buy a property? In making this decision the current assistance which is available when buying your first property, or a new build property, should be taken into consideration.
The last major review by Homes England, in late 2018, revealed that 15,704 new homes had been completed in the six month period leading to that review. The Government are looking to increase the number of new build homes year on year to meet the ever increasing demand for housing in the UK. As well as increasing the production of new build properties, the Government are offering a number of schemes to assist buyers in getting on, or moving up, the housing ladder. The key schemes being offered by the Government are:
Help to Buy ISAs – This ISA is available to first time buyers to assist in the purchase of a property. This scheme is available for new build and non new build properties. The ISA allows a first time buyer to open the account with a maximum first payment of £1,200. Regular monthly payments up to a maximum of £200 per month are allowed thereafter.
The Government will provide a 25% non-refundable bonus payment on the amount held at the time of closing the ISA to the first time buyer’s solicitor to aid them in buying their first home. The bonus is available up to a maximum of £3,000 and the minimum payment made by the Government is £400 (meaning a buyer must have a minimum of £1,600 in their ISA to benefit from the bonus). For example, if the balance of your ISA is £6,000 upon closing, you would obtain a bonus of £1,500.
The bonus is only payable on properties worth less than £250,000 or £450,000 in London.
Please note that if you are purchasing with a partner then you both may have a H2B ISA, on the basis the above criteria are met.
Help to Buy Equity Loan – This is a second mortgage available to people who do not have an interest in another property anywhere in the world. This scheme is solely available on new build properties, you will not be able to use this scheme on existing builds.
The Government, via the Homes and Communities Agency, are offering assistance to buyers by providing a loan up to 20% of the property purchase price where the purchase price is not above £600,000. If you are purchasing in London, the loan is available up to a maximum of 40% of the property value. The loan is provided for a term of 25 years and requires the purchaser to provide a minimum 5% deposit towards the purchase price. For example if you are buying a house for £250,000 – your minimum deposit would be £12,500 and the maximum Equity Loan available would be £50,000.
The loan is interest free for the first five years, with an interest rate of 1.75% payable in year six and reviewable each year thereafter.
In the five years following the launch of this scheme, some 169,102 properties have been purchased with the assistance of an Equity Loan. The scheme has been heavily used in the North East of England and has assisted a number of people to get onto the property ladder who otherwise may not have been able to.
Lifetime ISAs (LISAs) – A lifetime ISA is available for people between the ages of 18 and 40 and allows you to save up to £4,000 per year into the account, to save for retirement or to assist in purchasing a first home. The Government will add a bonus payment up to a maximum of £1,000 per year, or 25% of the figure saved in the LISA each year, up to a maximum of £1,000.
To use the LISA to assist in purchasing your first home, the following criteria must be met:
- The money must be used to purchase your first home;
- The property must cost £450,000 or less;
- You must be purchasing with the assistance of a mortgage; and
- You must buy the house at least 12 months after opening your LISA.
Please note that if you are purchasing with a partner then you both may have a LISA each, on the basis the above criteria is met.
Developer Incentives – When purchasing a new build property you may be able to negotiate a number of sales incentives with the builder. Incentives often include, but not limited to, cash deposit contributions, legal fee contributions, stamp duty contributions, washing machines, white goods, carpets, curtains and many other internal and external fittings and contents.
Most major mortgage lenders will allow a developer to provide incentives up to 5% of the purchase price of the property.
Such incentives are only available on new build properties.
Reduction in Stamp Duty Land Tax – First time buyers purchasing a property up to £300,000 will now pay zero stamp duty. First time buyers purchasing between £300,000 and £500,000 will pay a flat rate of 5% stamp duty on the proportion of the purchase price between £300,000 and £500,000. This change in tax has led to large savings for first time buyers and therefore assisted them in getting on the property ladder.
So, is now a good time to buy a new build property? That is, in all honesty, a very difficult question to answer. The economic outlook is very uncertain and nobody is able to predict the future. What can be said however, that is the UK Government have rolled out a number of useful schemes to assist buyers and nobody knows how long these schemes will be here to stay. In addition to this, mortgage interest rates are historically low and many people may see this as an opportunity to get onto, or move up, the housing ladder. However if any of these schemes appeal to you, and would be helpful in your current situation, now is potentially a good time to buy!
Jonathan Wall, Associate Solicitor and Head of New Build Property
