Why you only need £8,000 to buy a £200,000 home
One of the key policy announcements of the recent Budget was the launch of a Help to Buy ISA. Under the scheme announced by George Osborne, first-time buyers will receive a bonus from the government when they save up a deposit for a new home. With other schemes available to support first-time buyers it is now possible to use a range of initiatives to buy a £200,000 home with just £8,000 of your own cash.
Combination of Help to Buy schemes can help you buy your first home
Under the Help to Buy ISA, the government rewards savings of £200 a month by adding a £50 monthly bonus. This means that for every £1,000 that goes into your Help to Buy ISA you will only have to contribute £800 with the remainder coming from the government.
If you use this scheme in conjunction with the other buying initiatives currently available it means that you can buy a £200,000 home with just £8,000 of your own savings. This is because first-time buyers can use the Help to Buy scheme to buy a new-build property with a deposit of just 5%. Here, the government offers a 20% interest-free loan for five years, meaning that you will only have to borrow 75% of the property value as a mortgage.
Using the scheme, you would only need a £10,000 deposit to buy a brand new £200,000 property. Using the Help to Buy ISA as well you'd only need to save £8,000 of this with the rest coming from the government.
How the Help to Buy ISA will work
The Daily Mail reports that the Help To Buy ISA is expected to be on sale in the autumn from banks and building societies. The minimum bonus is £400 meaning that you will have to save at least £1,600 to quality. There is a maximum bonus of £3,000 on savings of £12,000.
You will be able to open your account with £1,000 and you can make monthly contributions of up to £200. If you are planning to buy with a friend or partner then you may be able to double the benefit as accounts are limited to one per person, not one per house.
If you also use the Help to Buy scheme then you will have to pay your mortgage, but you won't pay anything on the government funded loan for the first five years.
After this you will pay 1.75% interest, rising annually by inflation, as measured by the retail price index, plus 1%. The 20% loan is repaid when your property is sold.
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