The Help to Buy scheme is a Government initiative that has been set up to help stimulate the housing market and to help first-time buyers and also existing homeowners purchase new build properties.
The Government had previously stated that the scheme would end in 2021 but has now confirmed that it will extend its Help to Buy equity loan scheme from 2021 to 2023, However, this extension is going to be restricted to first-time buyers purchasing newly built homes.
From 2021, there will also be new regional price caps, which could reduce the maximum value of homes that can be bought through the Equity Loan Scheme:
Currently, the purchase price must be no more than £600,000. Under this scheme, you can borrow 20% of the purchase price, interest-free for the first five years as long as you have at least a 5% deposit.
If you live in London, you can borrow up to 40% of the purchase price.
From 2021, there will also be price caps in different regions which could reduce the maximum value of homes that can be bought through the Equity Loan Scheme.
Who cannot apply for the scheme?
- You are unable to use the above schemes to buy a second home or a buy-to-let property.
- If you use the Help to Buy scheme, you can only take out a repayment mortgage.
- You cannot buy a property that is more than the set price limit of £600,000.
The Help to Buy scheme is available in England only
There are different schemes available if you live in Scotland, Northern Ireland & Wales
The Money Hub Ltd has specialist advisors who can guide you through the application process.
Equity loans with The Help to Buy Scheme
- You will need at least 5% of the sale price of your new-built flat or house as a deposit.
- The government lends you up to 20% (or 40% if you live in London) of the sale price.
- You can borrow the rest (up to 75%, or 55% if you live in London) from a mortgage lender, on a repayment basis.
- The equity loan must be repaid after 25 years, or earlier if you sell your home.
- You must repay the same percentage of the proceeds of the sale as the initial equity loan (i.e. if you received an equity loan for 20% of the purchase price of your home, you must repay 20% of the proceeds of the future sale also).
Cost of your new home – £350,000
|Cost name||Percentage of total||£ value|
Will I be charged any interest or fees on my Help to Buy Equity Loan?
You will not be charged any fees or interest for the first 5 years of your Government Equity Loan, from the 6th year you will be charged 1.75%. After this time, the fee will rise to inflation, and this is based on the Retail Prices Index (RPI) plus 1% each year.
These figures are put together by The ONS (Office for National Statistics).
These associated fees & ongoing costs may be payable:
- Reservation fee – this will be no more than £500 for this scheme.
- Mortgage arrangement fees. These will vary depending on your financial advisor and mortgage lender.
- Valuation fee – this may be a requirement of your mortgage application.
- Legal fees – you may be given details of recommended solicitors.
- Monthly service charges – again, these will vary from property to property.
- Other monthly costs you will have – don’t forget about your Council Tax, TV licence and your usual utility bills.
How do I apply for Help to Buy?
If you wish to purchase a home under the Help to Buy Equity Loan scheme, just follow the steps below:
- Find a property from a registered developer who is participating in the Help to Buy Equity Loan scheme.
- Speak to a mortgage broker to confirm your help to buy mortgage options.
- Once you have decided on the property, complete a Reservation Form with the developer.
- You will then need to complete a Property Information Form which you can get from the developer or the Help to Buy agent. This needs to be sent to the Help to Buy agent (some can be done online and others you can email the form). Your application will be assessed and checked that it meets the affordability criteria. If it does, you will then be issued an Authority to Proceed (ATP) document. Please do not apply for a mortgage before receiving this document. The Authority to Proceed (ATP) document will also confirm your next steps and should be read with the Help to Buy Guide documents provided by the developer or The Help to Buy Agents in your area.
- Submit the mortgage application and your broker will take your application through to Offer and then the solicitor will liaise with you and other parties to arrange completion.
How much will I have to pay back
Years 1-5: No fees & No Interest Charge
Year 6: 1.75% of the loan
Year 7 onwards: 1.75% + RPI + 1%
This payment does not go towards paying off the government loan, you are simply paying the interest that is being charged. When you sell your home, or you pay off your mortgage, you do have to repay the equity loan, also a share of any equity gained, which is the increase in the value.
It will work like this:
For a home bought for £350,000, you put down a 5% deposit initially = £17,500 and the Help to Buy scheme provided 20% = £70,000. You sold the property for £399,000. (The property has increased in value by 14%)
|Increase in value||14%|
|Equity loan repayment||£76,860 (£70,000 initial 20% + 14% equity gain of £6,860)|
|Mortgage||£262,500 (less any capital repayments)|
|Money left to you||£59,640|
The remaining £59,640 (this may be more) can be used as a deposit on your next home.
The exact amount will depend on how much you have paid off your mortgage, you may not have to pay back the Equity Loan if you have already paid this off.
You can also pay back part or all of your Equity Loan at any time. The minimum percentage you can pay back is 10% of the market value.
How to get Help to Buy Mortgage
Please contact our specialist help-to-buy advisors at the Money Hub Limited on 0203 725 8530, who will guide you through the Help To Buy Mortgage process or complete an enquiry form where you can schedule a call.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.