Help To Buy Scheme: Everything You Need To Know

Help to Buy is a government scheme that helps first time home buyers to buy a property with just a 5% deposit. A considerable 14% of all first time buyers have used the Help to Buy scheme since its launch in 2013, and it has helped more than half a million people get onto the property ladder.

The Help to Buy scheme offers an equity loan where the government lends first time buyers and current homeowners to buy a new-build home.

With this scheme, you can borrow up to 20% of the full purchase price of the home 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, and the maximum property price is £600,000.

How Does It Work?

 To get a Help to Buy Equity Loan, you must have at least a 5% deposit of the sale price of your new build flat or house. The Government will then lend you up to 20%, or 40% if you live in London, of the sale price. 

You borrow the rest, which will be 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 choose to sell your home.

For example, lets say you buy a home for £200,000 under the equity loan scheme, you pay a 5% deposit which is £10,000, you get a 75% mortgage for £150,000 and the government loans you the final 20% of £40,000.

How Much Will I Pay Back?

You don’t pay any interest fees on the loan for the first five years, however in the sixth year you will be charged 1.75%. You do pay a monthly fee of £1 by direct debit for the first five years, and after five years you will be charged an annual fee until you have repaid the loan.

You can start to make part repayments, which is known as ‘staircasing’ to reduce your outgoing costs when the interest-free period ends. Staircasing also means that you’re entitled to a great share of the total sale proceeds if you come to sell your home.

You can make repayments of your equity loan at any time, however every time you want to make a repayment, an independent valuer must assess your property – and you have to pay for the value.

Who Can Apply?

The Government has confirmed that it will extend its Help to Buy equity loan scheme from 2021 to 2023, however the extension will be restricted to first time buyers only.

You can’t apply for the scheme if you plan to buy a second home or property to rent out, and if you use the Help to Buy scheme you can only take out a repayment mortgage, rather than an interest only mortgage.

Which Lenders Offer Help To Buy Mortgages?

Most lenders offer Help to Buy mortgages, including big names such as Barclays, Nationwide, Santander and NatWest.

Let me know in the comments below your thoughts on the scheme, and if you or anyone you know has used it when purchasing their home!


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help to buy scheme: everything you need to know

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