Help to Buy is a government programme that aims to support first-time buyers and home movers with minimal equity. You need to put down 5% of the home’s worth as a deposit under Help to Buy.
What is the Help to Buy Scheme?
Help to Buy is a government programme introduced in the 2013 budget to assist citizens in purchasing a new home with as little as a 5% deposit and a government equity loan of up to 20%. This programme aims to increase the availability of new homes on the market while also increasing the number of lower deposit mortgages with more favourable borrowing rates.
Thanks to Help to Buy, buying a new home has never been more affordable; it will give you access to a wider variety of mortgage products with a loan-to-value ratio of up to 75%.
- Help to Buy has helped over 77,000 people in the UK move since it was introduced
- You may only need a 5% deposit
- The Government will lend you up to 20% of the purchase price (called an equity loan) interest-free for the first 5 years
- Helps you to secure a 75% mortgage
- It is available to anyone looking to purchase a new house, not just first-time buyers. Different areas have different property value limits.
Am I guaranteed to get a mortgage? Are there any criteria I need to meet?
Borrowers must pass sufficient measures to ensure they can repay the mortgage and pass the credit and affordability checks of their preferred lender and pass the affordability checks on the help to buy calculator, which can be found on their website.
What are the terms and conditions of the Help to Buy equity loan scheme?
A maximum of 20% of the purchase price would be given to eligible applicants as an equity loan (based on the open market value). Buyers must finance at least 80% of the purchase price with a traditional mortgage, savings, and any other necessary deposit.
There is no interest on the equity loan for the first five years. The equity loan has a rate of 1.75 % at the start of year six, which increases annually by RPI inflation plus 1%. The HCA provides the equity loan, which is kept as a second fee.
What is a Help to Buy Scheme Mortgage?
First-time buyers and home movers who apply for the Help to Buy mortgage programme will only need to put down 5% of the home’s value as a deposit. The government would then step in with an equity loan to help raise this amount.
Help to Buy programmes, which the government backs, are geared to assist first-time buyers and others in stepping up the property ladder.
Types of Help to Buy Scheme Mortgages
Help to Buy: Equity Loan
The Help to Buy Equity Loan scheme requires a homeowner to put down a 5% deposit on a new-build home, with the government lending up to a further 20% – or 40% if you live in London – for a total deposit of 25%, or 45% for Londoners.
This part of the plan doesn’t apply to Properties that aren’t brand new, and there’s a £600,000 maximum purchase price.
For the first five years, the government’s portion of the loan is interest-free. From year six onwards, you’ll be paying 1.75% interest. After that, the rate rises every year by 1% in line with the Retail Prices Index – RPI – inflation rate.
Since it’s an equity loan rather than a fixed sum, you’ll have to repay the government 20% of the value of your house when you sell it.
You can repay the equity loan at any time until then, without interest, as long as you do so in blocks of at least 10% of the existing market value of your house.
Help to Buy: Shared Ownership
Shared ownership is a government-backed programme that assists people who can’t afford a full mortgage on a home. Shared ownership allows you to purchase a portion of your home (between 25% and 75% of its value) and pay rent on the remaining portion.
You may be able to purchase a larger share of the house later on. The scheme is only available in England, and the full information can be found here.
London Help to Buy
On February 1, 2016, the government’s London Help to Buy scheme went live.
Prospective buyers in London will still be required to put down a 5% deposit on a new-build home, much like the Equity Loan programme in the rest of the UK. Still, they will be able to borrow up to 40% of the property value instead of the 20% available elsewhere.
That means you’ll have 45% to put down of the property’s worth after factoring in the 5% deposit you’ve saved. You will need to take out a mortgage for the remaining 55%
Only new-build properties worth up to £600,000 are eligible for the scheme, and the property you’re purchasing must be your only residence. Help to Buy cannot be used to purchase a buy-to-let home.
If you’re buying in any of London’s boroughs or the City of London, you’ll only be eligible for the 40% loan.
Help to Buy equity loans in Scotland
It’s called the Help to Buy (Scotland) Affordable New Build scheme north of the border.
- Open to first-time buyers and home movers
- Only for a new build
- Max purchase price of £200,000 (2018-21)
- It’s your only home, and you don’t sublet or rent it out
- Help with 15% of the purchase price
Government-backed co-ownership schemes in Northern Ireland
The government administers a similar co-ownership arrangement in Northern Ireland, which allows you to purchase a share of a property and rent the rest.
The property value is limited to £165,000. You can buy as much as you want, ranging from 50% to 90% of your budget.
Forces Help to Buy
The Forces Help To Buy Scheme ( FHTB ) allows forces personnel to borrow up to £25,000 interest-free (repaid over 10 years) to use as a deposit when buying a property to be used as their main home.
To find out more, advice is available to forces personnel through their Chain of Command and personnel agency. Information is also available on the Government website.
Who qualifies for a Help to Buy Scheme Mortgage?
The general eligibility criteria for Help to Buy is as follows:
- You must be at least 18 years old.
- There is no maximum household income level.
- You will require at least a 5% deposit of the full purchase price of the property.
- It would help if you took out a mortgage that will need 25% or more of the full purchase price.
- Help to Buy is only available on new build homes.
- You can’t buy a property that’s on sale for more than £600,000 I.e. London and varies in other parts of the country.
- If you own another home in the UK or abroad, you must have sold your current home before or at the point of completion on your Help to Buy property.
- You can’t rent out your existing property to buy a second home through Help to Buy.
- Part Exchange is not available through this scheme.
- You cannot sublet your Help to Buy home.
- You must be able to prove you can afford the mortgage repayments and other outgoings on the home you wish to buy. There is a standard Homes and Communities affordability calculator which will determine whether the property is sustainable long term.
Help to Buy Scheme Mortgages: What to consider?
Do I need a deposit?
The best mortgage rates are normally reserved for borrowers who have saved up at least 25% of the property’s value.
If you have a deposit of at least 5% and follow certain general standards, you should be able to get help with the Help to Buy: Equity Loan programme, whether you’re a first-time buyer or moving on to your next home.
Is the scheme right for me?
Help to Buy could be right for you if you are interested in a brand new home and want to keep your mortgage repayments as low as possible.
How much can I borrow? What about the mortgage?
You can use the Help to Buy scheme to buy a property worth up to £600,000 if you meet the eligibility requirements and pass the affordability tests.
One of our suggested Independent Mortgage Experts will provide you with more financial details and help you navigate the Help to Buy process.
Can I use this scheme if I have a house to sell?
Part Exchange is not available under Help to Buy.
Alternatives to Help to Buy
Consider a low-deposit mortgage that isn’t part of a government-sponsored programme.
Some lenders will accept mortgages with Deposits as low as 5%, but you’ll have a wider selection of options if you save at least 10%.
Some lenders also offer 100% financing, but these are usually very stringent and often require a guarantor.
More information on Help to Buy
If you’re interested in Help to Buy, you can start by contacting a Help to Buy agent in the area where you want to buy. Help to Buy agents, not mortgage lenders, handle the scheme.
To find lists of Help to Buy agents and more information about how the scheme operates, go to the government’s Help to Buy website and click on the “Equity loan” tab.
You can find out more about government schemes to help you buy a home here. Please be wary that NOT ALL mortgage lenders offer Help to Buy mortgages, so yet again, get in touch and speak with one of our experts.
How Mortgage Saving Experts and Help to Buy can assist you in finding your new home
We can help in 3 easy steps:
- Have a chat with you to see what you want to do and how much you can borrow and afford to buy.
- Search the whole of the market and come back to you with the best rates.
- Once you have found a property, we can help you apply to help To Buy and apply for the mortgage for you as well then see it all through until the day you get your keys and move in.
Comparing mortgage quotes
You can use our mortgage comparison tool to see how much of a loan you’d like from a lender, which you can then add to your Help to Buy loan and deposit to compare mortgage quotes.
You’ll be able to compare mortgage quotes based on the initial monthly costs, interest rates, contract duration, overall LTV, and any product fees you’ll have to pay for each deal. It’s important to keep in mind that any quotes you receive won’t include the Help to Buy loan repayments you’ll have to start making after five years, so you’ll need to be sure you can handle both sets of payments.
The comparison tool doesn’t consider your financial situation or your credit history, which means that any LTV or interest rates you’re offered when you come to apply for a mortgage may be different.
What do I do next?
If you have a particular development or property in mind, please contact one of our helpful Experts.