How does Help to Buy work?

Help to Buy explained: Here is how the scheme could make it easier for you to get your first home with help from the government.

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How does help to buy work?

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

What is the Help to Buy Scheme?

It is run by the government to help you get onto the property ladder even if you do not have a large deposit saved.

In England, the scheme gives you an equity loan from the government that you can put towards buying a new build home. The loan is interest free for five years.

To buy a home you need a deposit you have saved yourself of at least 5% of the purchase price. The equity loan from the government can cover up to 20% of the price, and a Help to Buy mortgage covers the rest.

For example, if you bought a home that cost £200,000:

  • You could pay a 5% deposit of £10,000

  • You could get a 20% equity loan of £40,000

  • You would need a mortgage for the remaining 75%, which would be £150,000

In London the equity loan can cover up to 40% instead of just 20%.

You need to repay the amount you borrow from the government within 25 years or when you sell the house, but you can choose to pay it back before then.

There are separate schemes for:

  • Wales, where the scheme works in the same way but with a maximum purchase price of £300,000

  • Scotland, where the Affordable New Build Schemes let you buy a home with a 5% deposit and a 15% equity stake provided by the government

  • Northern Ireland, where you can buy a home worth up to £150,000 through their Co-Ownership scheme

The new equity loan scheme was launched on 1 April, 2021 and will be withdrawn in 2023.

Here are the pros and cons of the scheme

Are you eligible for Help to Buy?

You must be over 18 and it can only be used:

In England you can only use this to buy a new build home. You must buy it from a house builder registered with the Homes and Communities Agency. For the new 2021-2023 scheme, there are maximum house prices imposed depending on the region in which you want to buy your new build. Here are the price caps ordered from highest to lowest:

  • London: £600,000

  • South East: £437,600

  • East of England: £407,400

  • South West: £349,000

  • East Midlands: £261,900

  • West Midlands: £255,600

  • Yorkshire and The Humber: £228,100

  • North West: £224,400

  • North East: £186,100

If you are buying elsewhere in the UK, here are eligibility rules for the schemes in:

How much does it cost?

Help to Buy mortgages come with all the same costs as any other mortgage, but you also have to pay back your equity loan and pay fees on it.

You do not pay back the exact amount you borrowed because your equity loan is calculated as a percentage of your property's value.

For example, if you bought a property for £200,000, a 20% equity loan would come to £40,000. If you sold your home later for £220,000, you would have to pay back 20% of this to the government, which would come to £44,000.

  • For the first five years this loan is interest free.

  • After five years you will be charged an additional annual fee until you have paid back the loan.

  • This will start at 1.75% of the amount you owe and is charged each year.

  • The rate will increase each year by the same amount as the Retail Price Index (RPI) plus 2%. The RPI is a statistic the government uses to measure inflation.

  • You can repay this fee with a monthly or annual direct debit.

How to apply for Help to Buy

You can contact your local Help to Buy agent to:

  • Find a property

  • Check your eligibility

  • Start your application

  • Find out if you will be accepted for an equity loan

You will also need to find a Help to Buy mortgage to take out alongside your equity loan.

What if your circumstances change?

Help to Buy is part of a legal agreement, so any changes to your policy will need to be agreed by everyone named on the mortgage and your Help to Buy agent.

You also have to pay any administration fees charged by the scheme and your lender. Check with them how much this will cost.

If your partner moves out

You can apply for Help to Buy and a joint mortgage with a partner or another person.

If one person moves out, for example if you split up, you need to contact:

  • Your lender to remove one of you from the mortgage

  • Your Help to Buy agent

You will then need to draw up a legal document called a Deed of Release, which formally removes one of you from the scheme and the property.

If someone else moves in

You could add someone to your mortgage and the Help to Buy agreement, but you need permission from your Help to Buy agent and lender.

If you lose your job

You still need to keep paying your mortgage and any Help to Buy fees, even if your income goes down.

How to insure yourself against unemployment

How to cope with redundancy

If you die

If you bought your home jointly with someone else, ownership of the property can pass to:

  • The surviving co-owner, who then owns the home in full

  • Another person named in your will, who could inherit your share in the property

If you own your property by yourself, your share in it is passed to the person named as beneficiary in your will. They will also be responsible for paying the rest of the equity loan back.

They can sell your home or keep it in their name if they can afford the mortgage and loan payments.

Should you use Help to Buy?

Work out if it is right for you by looking at the pros and cons of Help to Buy.

If you decide against using Help to Buy, you may still be able to buy a home.

Help to buy scheme FAQs

Can I get Help to Buy in London?

Can I buy a property off-plan?

Could I get shared ownership instead?

What is the Lifetime ISA?

The Help to Buy mortgage guarantee scheme

The mortgage guarantee scheme ended on 31 December, 2016.

This scheme let you buy a home with a deposit of at least 5% of the property's value and a mortgage to cover the rest. The mortgage covered up to 95% of the total price, which is called its loan to value (LTV).

The government provided a guarantee to your lender for up to 15% of your home's value. This would cover some of the lender's costs if you failed to pay your mortgage and they had to repossess your home.

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