03 December 2020

FAQs: Help to Buy

You’ve most probably come across Help to Buy in your home search, however if you haven’t, Help to Buy is the Government backed scheme that allows you to buy your home with just a 5% deposit.

In March 2021, the new scheme will have a new eligibility criteria and feature regional price caps based on average starter home prices in the area. Each average price is multiplied by 1.5 to calculate the cap. Properties over each regional amount will not be eligible for the scheme.

Help to Buy is great if you can’t quite afford a full deposit on the open market or if you have a full deposit, Help to Buy could mean you could buy a bigger house than you had initially expected. To get your questions about Help to buy answered, keep scrolling!

How does the new Help to Buy scheme work?

If you’re a first-time buyer in England, you can apply for a Help to Buy: Equity Loan. This is a loan from the government that you put towards the cost of buying a newly built home. You can borrow a minimum of 5% and up to a maximum of 20% (40% in London) of the full purchase price of a new-build home.

To use the Help to Buy scheme, there is an eligibility criteria you have to meet. Take a look at the criteria here:
The Help to Buy scheme will only be open to first time buyers. This means if you have owned a home previously, or own a home at the time of applying, you will not be eligible.

The price of eligible properties will be capped by region. For Yorkshire, the purchase price is capped at £228,100. Properties on sale for a higher price will not be eligible.

The maximum equity loan amount given by the government for purchases outside of Greater London will still be 20% of the purchase price. The minimum buyer’s deposit is still 5%.

What happens after the 5 years?

After 5 years of taking out your Help to Buy equity loan, there are a few changes to note.
  • You continue to pay £1 monthly management fee
  • You start to pay a monthly interest fee of 1.75% of the 20% equity loan
  • Your interest fee will rise each year in April (RPI) plus 1% until you repay the loan
  • You will continue to pay interest until you repay your loan in full
  • You must also repay your equity loan in full. This happens at the end of the equity loan term, when you pay off your repayment mortgage or when you sell your home.

If the market value of your home rises, so does the amount you owe on your equity loan. If the value of your home falls, the amount you owe on your equity loan falls too.

How does a Help to Buy mortgage work?

The mortgage you take out on your home will be for 75% of the properties value. For example, if you purchased a home at £190,000, your mortgage would be for £142,500.

You will have paid a 5% deposit and the other 20% is an interest-free loan. Your 75% mortgage works similarly to a regular mortgage - you have set payments each month. You take out a help to buy mortgage, typically for 25 years.

How does Help to Buy work when selling your home?

When/If you decide to sell your current home that you bought using help to buy, you will have to repay your equity loan at the same time.
The 20% loan you initially took out will have to be re-paid – if it’s been less than 5 years, the loan will still be interest free, however if it’s after 5 years, you’ll have to pay any additional interest that has incurred on the loan.
For example, if you bought a home at £200,000 and you sold it for £210,000, you’d have to re-pay your 20% equity loan at £42,000 and your 75% mortgage at £150,000.

When does Help to Buy scheme end?

The new Help to Buy scheme officially ends March 2023. 

Can Help to buy be used on any new build home? 

Yes – the Help to Buy scheme is only available on new build homes.
The scheme is designed to allow anyone looking to buy a house an opportunity to dive onto the property ladder. It’s a great opportunity to get on the ladder with a low deposit. Currently available to both first time buyers and second steppers, the scheme is available only on new build homes.

Sources: https://www.helptobuy.gov.uk/equity-loan/equity-loans/