With the price of the average home in the UK now standing at around a staggering £230,000, according to the Land Registry of England & Wales, getting onto the property ladder is becoming increasingly difficult. With most mortgages only allowing you to borrow up to 3½ times your annual salary, and it’s almost impossibility for first time buyers to get a foothold. However, it is a little bit easier if you’re classed as a key worker, thanks to a government incentive.
Key worker mortgages are available to help people that are classed as key workers by the government, to help them get a house near their workplace. Jobs that fall into this category include police, nursing and teachers. The view of the government when introducing this mortgage relief plan was to stop workers from leaving these important jobs for the sole reason being that they couldn’t afford to buy a house otherwise. So how do they work?
The good thing about key worker mortgages is that there are various ways you can arrange a mortgage. The main one is what’s known as an equity loan scheme. The way this works is that the key worker is given a loan to use towards the purchase of their new home. That loan is then theirs to keep – the only time they’d have to return the loan is if they leave their jobs within a 2-year period of receiving the loan. Or of they sell their house, whichever comes first.
Because the loan is equity linked, it works slightly different to a more traditional loan, and is one of the reasons why they’re so attractive to the relevant workers. The best way to look at it is that you pay back the same percentage that you borrowed, as opposed to a set amount of interest as the mortgage runs down. For example:
- Your house is £100,000, so you get a loan of £25,000 towards it
- You sell the house 7 years later for £160,000
- The amount you pay back to the lender that gave you the key worker
- mortgage is £40,000, since your initial loan was 25% of the property price
Although it might seem that you have a lot to pay back, when you take into effect you didn’t have to pay the full amount for your new home when you initially bought it, you’re getting an excellent return on a low interest loan.
Additionally, because you didn’t have the full amount to budget for when you purchased the property, you could put the £25,000 you saved into a high interest savings account. Or you could use it to renovate some rooms, or landscape your garden – basically anything that will add even more value to your home when it comes to reselling further down the line.
Because a key worker mortgage isn’t for everyone, they can be a little more complicated to understand than a traditional one. However, as long as you speak to an advisor or broker who’s experienced in this field, you should be fine.