The new Save to Buy (STB) incentive has been launched by New Build developer Fairview Homes.
Like Help to Buy the STB scheme is aimed at first-time buyers who may struggle to save a deposit to buy their new home. A buyer must have a minimum of 1% saved but they are able to live in their home whilst paying a “rent” which is actually a regular contribution to their deposit.
This new scheme aims to help first-time buyers to buy properties and take up the slack after the removal of government backed schemes such as the Help to Buy Equity Loan and Help to Buy ISAs. Almost two thirds of first-time buyers struggle to save.
What is the Save to Buy scheme?
A buyer’s affordability and credit score will be checked in advance by a mortgage broker. The new buyer’s personal finances will be checked to confirm affordability and a credit check carried out to confirm that they will qualify for home ownership.
The buyer lives in the flat or house whilst paying a “rent” which is actually a contribution to their house deposit. This contribution is taken as fixed monthly payments payable over a 6-12 month period but could be stretched up to two years. The scheme aims to break the vicious rental cycle to save first time buyers additional stress by providing breathing space while they save the minimum deposit required.
When the buyers are within one month of saving the required amount a mortgage application will be submitted to enable them to start the purchase process.
Why was the Save to Buy scheme launched?
The STB scheme has been launched to make it easier for first-time buyers to get on the property ladder. It coincides with the withdrawal of government schemes aimed at underpinning the property market such as Help to buy.
Who is the ideal candidate for Save to Buy?
To qualify for STB you must meet the following criteria:
- Be a first-time buyer.
- In full-time employment.
- The property must be your only home.
- You must have been qualified by a financial advisor.
How does the Save to Buy scheme work for property Purchase?
Save to Buy aims to assist buyers with their first home purchase by allowing them to live in their new home whilst paying “rental payments” which are actually a contribution to your deposit.
This means that first-time buyers are not struggling to pay rent whilst at the same time struggling to put together the necessary savings.
The rent/regular savings are payable over a 6, 12 or in some circumstances a 24 month period. When you are within one month of reaching the required deposit a mortgage application is submitted. You will then exchange contracts and own your own home once legally completed.
Is there an initial deposit you have to pay?
Buyers must have saved at least a 1% deposit for the new purchase.
How are the monthly deposit payments calculated?
The payments will be based on the amount needed for a 5% deposit less the 1% already saved.
For example if you are buying a property for £300K, you must have a 1% deposit i.e. £3,000. The remaining deposit, to make up the full 5% would be £9000.
Advantages of the Save to buy scheme
There are some obvious advantages to the STB scheme:
- Takes pressure of first-time buyers who may struggle to save.
- Incentivises first-time buyers to save money in disciplined way.
- Provide first-time buyers with confidence that they will qualify for a mortgage when they are ready to buy.
Disadvantages of the Save to Buy Scheme
The major disadvantage of the STB scheme is that if your circumstances change and you are unable or unwilling to complete the purchase of the property you will get none of your monthly “deposit” payments back.
Another potential disadvantage is that the scheme is only available via Fairview Home’s . You cannot purchase an existing non new build property.
There is a waiting list for this scheme. New applicants are added on a first come first served basis.
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Are new builds good for first-time buyers?
New build properties can be good for first-time buyers for the following reasons:
- The property will usually come with a warranty that will provide a degree of security over the quality of the build.
- New build developments tend to be located area’s which are popular with new buyers such as City Centre developments.
- New build developers usually offer generous incentives to First time buyers seeking to buy their first home.
What is the difference between Save to Buy and the Lifetime ISA?
A Lifetime ISA is a government backed scheme that incentivises first time buyers to save money for their first home via a government bonus. The government bonus is 25% each year added to your savings as a bonus. You will also earn interest if you have a cash ISA. The amount that can be saved in a Lifetime ISA is £4,000 per year.
This means that the maximum bonus added by the government is £1,000 per year. These savings must be used towards the purchase of your first main residence. Their is a penalty if the funds are used for any other purpose when withdrawn.
The Save to Buy scheme aims to assist buyers by allowing them to live in the property whilst paying a regular monthly amount which is used towards their deposit. This regular monthly amount is based on the deposit required and area’s average monthly rent.
The mortgage deposit required will be calculated and will be saved via a fixed monthly cost. The scheme is aimed at buyers who would otherwise struggle to save their deposit whilst at the same time paying rent.
Can I increase the monthly payments to pay the deposit faster?
Yes, it is possible to top up your savings and is encouraged by the developer as it seeks to save buyers the time needed to save. Extra savings can be made by additional monthly payments.
The buyer decides on the amount extra they will pay but these extra savings will potentially allow them to complete sooner.
Save to Buy is an innovative scheme at further supporting the first time buyer market after the withdrawal of the Help to Buy scheme.