Help to Buy is a government-backed equity loan scheme in England and Wales designed to help first-time buyers get onto the property ladder. It is one of several measures the government has put in place to help Brits afford to buy a home.
The Help to Buy Equity Loan scheme enables first-time buyers to purchase a new build property with just a 5% deposit. Users of the scheme can borrow up to 20% (rising to 40% in London) of the purchase price from the government. The loan is then interest-free for five years.
The home needs to meet certain requirements to qualify, including being your primary residence and falling within a region-specific price cap. The scheme is time-limited, with applications currently set to run until March 2023.
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A Help to Buy equity loan lets you borrow money from the government to put towards the cost of buying a home.
To access the scheme, you will need a deposit worth at least 5% of the property you want to buy. Normally, when buying a home, the remainder of the money needed would be borrowed from a mortgage provider and you’d pay interest. However, a Help to Buy equity loan allows you to borrow a chunk from the government, which is interest-free for five years, allowing first-time homeowners to concentrate on paying down their mortgage in the early years.
The maximum Help to Buy loan is usually 20% of the house's value, but in London, you can borrow up to 40%. The rest is then borrowed from a bank or building society by getting a mortgage.
The scheme helps buyers by allowing them to buy a home on a relatively low salary. It also gives them a better loan-to-value ratio, helping them access more competitive mortgage rates.
In the sixth year, interest is charged at 1.75% of the equity loan amount you borrowed in monthly payments. Every April after that, the interest rate rises by the Consumer Prices Index (CPI) plus 2%.
The Help to Buy equity loan must be repaid in full by whichever of the following is the soonest:
the end of the loan term (which is usually 25 years)
when you pay off your repayment mortgage
when you sell your home
When you make repayments, these are calculated based on the current value of your home, rather than the value when you bought it.
For instance, if your £200,000 home had risen in value and was now worth £300,000, the 20% you borrowed would now cost £60,000 to repay (up from £40,000 when you took out the loan). The equity you own would also have risen accordingly. Equally, if prices plummet, your loan repayment would be less, but your equity would be lower too.
You can choose to make repayments early at any time. Any part payment you choose to make must be at least 10% of the market value of your home at the time. These partial repayments will reduce the amount you owe on the equity loan.
Usually, the earlier you can make the repayments, the better the deal you’ll get and the more you’ll benefit should property prices rise in the future.
When you sell the property, you need to repay any of the loan left outstanding, calculated as a percentage of the final sale price. You’ll also owe any of your mortgage that’s not yet been repaid – everything left over is your equity, which can go towards your next home.
|Yorkshire and the Humber||£228,100|
|East of England||£407,400|
Aged 18 or over
A first-time buyer
Able to afford all fees and interest payments
Sold by a Help to Buy registered homebuilder
The only home you own and live in
Within the price cap for your region
It must not have been lived in by anyone before you buy it
Fixed-rate mortgages offer a rate of interest that is guaranteed for the length of the deal. Typically, offers last for two, three or five years, but some deals can be as long as 10 years. Your monthly repayments will also remain the same for that time, making budgeting easier and protecting you from interest rate rises. You won’t benefit if rates fall though. These deals are often more expensive, but you get certainty in return.
A tracker mortgage tracks the movements of another financial rate, usually the Bank of England base rate. As the base rate goes up or down, so will your interest and monthly mortgage repayments. These deals tend to be cheaper than fixed options but can get more expensive later if rates rise. Some trackers have a "floor" which means the rate won’t fall below this level, even if the base rate does.
A discounted rate mortgage offers a percentage discount off your lender’s standard variable rate (SVR), usually for a term of two or five years. For example, if your mortgage offers a 1.5 percentage point discount and the SVR is 4%, your interest rate would be 2.5%. This means your mortgage rate will rise and fall by the same amount as the lender’s SVR, and you need to make sure you budget for future increases. These mortgages may also come with a “floor”, which means that your interest cannot drop below a certain rate.
These mortgages offer a lump sum cash incentive when you complete on your mortgage. Some will pay the money upfront, while others wait until you’ve started making repayments. Different lenders will have their own terms and conditions so it’s important you check the rules carefully. As with most mortgages, this can include penalties for repayment before the end of the initial deal period. You should factor the cashback into the total cost over the offer period to make sure you’re getting the best deal for you.
There are several costs and fees associated with a Help to Buy equity loan.
Interest payments: You do not have to pay interest for the first five years. In the sixth year, you’ll be charged interest at a rate of 1.75%. The interest rate increases every year in April, by adding the Consumer Prices Index (CPI) rate plus 2%. The interest is applied to the total amount borrowed and spread out across the year in monthly repayments.
Management fee: You’ll need to pay a monthly management fee of £1 from the date you take out the equity loan until it is paid off in full.
Admin fees: Remortgaging or making repayments on the equity loan will often attract admin fees. You could also face other home-buying costs such as legal fees, mortgage arrangement charges and valuation reports.
Stamp Duty: First-time buyers paying £300,000 or less will not have to pay any stamp duty. If the home you’re buying is worth more than that, you’ll have to make sure you can afford Stamp Duty on top of the other costs.
The Help to Buy scheme is a great way to get onto the property ladder with a smaller deposit. Make sure to consider how you'll repay the loan, which is interest-free for five years, so you can get the maximum return on investment.”Nisha Vaidya, Mortgage Editor
Applications for the Help to Buy equity loan will run until March 2023.
This depends on your specific circumstances. A Help to Buy equity loan should allow you to get on the property ladder faster and secure a more favourable mortgage rate as your loan-to-value rate will be better. However, the interest rate starts to rise after six years and the amount you owe overall rises with the value of your home.
No, you need to get a mortgage designed to work with the scheme, which may mean a specialist lender or product. The deals in the comparison table above can be used with Help to Buy.
No, you can only use it to buy your main home. You cannot use it for a buy-to-let investment, holiday home or property you will not live in yourself.
It’s currently available in England and Wales. There was a Help to Buy scheme in Scotland but it’s now closed.
Yes, but lenders will want to see evidence that you have a reliable income and may choose to lend you a smaller amount than they would for someone in full-time employment. You may have to share tax returns or bank statements to prove how much you earn.
Yes, some remortgage deals are available for people with Help to Buy equity loans. Alternatively, you could consider remortgaging for a bigger percentage of the property’s value if possible and using it to repay the equity loan in full.
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