Posted on August 29, 2019 at 12:37 PM
What is it?
The Help to Buy scheme is a government scheme available up to 2023 that offers help to people that are struggling to save a deposit and purchase a property. In our experience, the most commonly used part of the scheme is the Equity Loan.
Within the Equity Loan, the government can lend buyers up to 20% of the sale price (40% in London). Buyers only need to save a 5% deposit alongside this, meaning they will have a total deposit of 25% (45% in London). This larger deposit gives buyers access to properties they might not have normally been able to afford, as well as access to more competitive mortgage rates.
Property Sale Price = £400,000.
Buyers 5% Deposit = £20,000.
Equity Loan (in London) = 40% = £160,000.
Remaining Mortgage Required = £220,000.
The Equity Loan is completely interest free for the first 5 years of owning the property. In the sixth year, interest is charged at 1.75%. After that, the interest rises by inflation based on the Retail Price Index plus 1% each year.
Only First Time Buyers (FTB) or people that are moving their main residence qualify for the scheme.
The scheme is restricted to properties with a maximum value of £600,000 and can only be used for New-Builds that have been approved.
The scheme cannot be used to purchase a second home or as a Buy-to-Let. There is no maximum income that would disqualify a buyer, however the usual mortgage affordability checks are carried out, and if the main mortgage required exceeds 4.5 times the household income the buyer cannot use the scheme.
How is it repaid?
Buyers can pay back the loan at any point and there are no penalties for early repayment but it must be paid back after 25 years. They have the option of paying off the Equity Loan while they still live at the property or all at once when they sell.
If they decide to pay it off in one go when they sell, the exact same percentage that they borrowed is payed back, regardless of any change in property value. That means that if the property has gone up in value, they will be paying back MORE than borrowed. Conversely, if property prices have gone down in the area, buyers will pay back LESS than they borrowed.
If they choose to pay the loan back incrementally, the minimum share that can be paid off each time is 10%. Like paying it off all at once, this is repaid according to current market value.
How to Get Started:
The Equity Loan scheme is run by Help to Buy agents that are appointed by the government. They can guide buyers throughout the purchase, from explaining general information about the scheme to dealing with the application.
From there you need to find an approved mortgage lender, and of course search for a Help to Buy property!
Contact us to hear about the Help to Buy properties we have available, or for any further information!