- What is Help to Buy?
- National differences
- Help to Buy: Equity loans
- Help to Buy: Mortgage guarantees
- Where to go for more information
What is Help to Buy?
There are two ways to make use of the scheme:
- Equity loans where the government lends first-time buyers and existing homeowners money towards a newly built home.
- Mortgage guarantee where the government promises your lender that it will cover part of any losses they may sustain as a result of the mortgage not being repaid. This is available for new and old properties across the UK.
It’s important to note:
- you can’t use these schemes to buy a second home or a property to rent out
- if you use Help to Buy, you can only take out a repayment mortgage
Both these schemes are for homes costing up to £600,000 in England, £400,000 in Scotland and £300,000 in Wales.
Northern Ireland has a different equity sharing scheme called co-ownership.
Help to Buy: Equity loans
How they work
- You need at least 5% of the sale price of your new-build flat or house.
- The government lends you up to 20% of the sale price.
- You borrow the rest (up to 75%) from a mortgage lender, on a repayment basis.
Here’s an example for you
Cost of home - £200,000
Your deposit 5% £10,000
Equity loan 20% £40,000
Mortgage 75% £150,000
The interest rate you will be charged
You don’t pay any interest or fees on the government’s equity loan for the first five years. In the sixth year, you will be charged 1.75%.
After that, the fee rises by inflation based on the Retail Prices Index (RPI) plus 1% each year. RPI figures are put together by the Office for National Statistics. See below for an example of how the fees work.
Interest rates for paying back your loan
Years 1-5: no fees
Year 6: 1.75% of the loan
Year 7 onwards: 1.75% + RPI + 1%
These fees do not go towards paying off the government loan.
When you sell your home, or the mortgage is paid off, you have to repay the equity loan plus a share of any increase in the value. It works like this:
Home bought for £200,000, sold for £250,000
Increase in value 25%
Equity loan repayment £50,000 (£40,000 + 25% profit)
Mortgage £150,000 (less capital repayments)
Your share at least £50,000
The remaining £50,000 (or more) can be used a deposit on your next home. The exact amount depends on how much you’ve paid off your mortgage.
You can also pay back part or all of your loan at any time. The minimum percentage you can pay back is 10% of the market value of your home. The amount you pay will depend on the market value at that time.
How do I find an equity loan?
Speak to the Help to Buy agent in your local area or a local developer who is registered with Help to Buy.
Help to Buy: Mortgage guarantees
How they work
These are government-backed mortgages. The aim is that the guarantee will encourage the lender to give you a mortgage which only requires a small deposit.
Mortgage guarantees are for:
- people living in England, Wales, Scotland and Northern Ireland
- buyers with a deposit of at least 5% of the purchase price
- first-time buyers and existing homeowners who are moving
- new or old properties selling for up to £600,000
They are not for:
- second homes
- properties you intend to rent out
- anyone who is using or going to use another home buying scheme
How do I get a mortgage guarantee?
Most major lenders are now offering mortgages under the Help to Buy guarantee scheme.
Be aware that the lender will check you can afford mortgage repayments. You are still responsible for paying the mortgage in exactly the same way as any other mortgage.
Using a mortgage guarantee for remortgaging
If your home’s value has dropped or if you owe your existing mortgage lender 95% of the cost of the value, a few lenders are offering mortgage guarantees to those looking to remortgage.