Help to Buy is a government scheme which can help first time home buyers get a property with just a 5% deposit. Use this guide to learn how Help to Buy schemes work, how to qualify and the different options available.
How does Help to Buy work?
The Help to Buy scheme offers an equity loan where the government lends first-time buyers and existing homeowners money to buy a newly-built home.
The purchase price must be no more than £600,000. Under this scheme, you can borrow 20% of the purchase price 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.
The Government has confirmed it will extend its Help to Buy equity loan scheme from 2021 to 2023. However, this extension will be restricted to first-time buyers purchasing newly built homes.
From 2021, there will also be new regional price caps which could reduce the maximum value of homes that can be bought through the Equity Loan Scheme.
Who can’t apply for the scheme?
- You can’t use the above 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.
- You can’t buy a property for more than the set price limits (see below).
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 as a deposit.
- The government lends you up to 20%, or 40% if you live in London, of the sale price.
- You borrow the rest (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 sell your home.
- You must repay the same percentage of the proceeds of the sale as the initial equity loan (i.e. if you received an equity loan for 20% of the purchase price of your home, you must repay 20% of the proceeds of the future sale).
Cost of home - £200,000
||Percentage of total
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’ll be charged 1.75%.
After then, 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
|Equity loan repayment
||£50,000 (£40,000 + 25% profit)
||£150,000 (less capital repayments)
||at least £50,000
The remaining £50,000 (or more) can be used as 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 the time.
How do I find an equity loan?
Speak to the Help to Buy agent in your local areaopens in new window or a local developer who is registered with Help to Buy.
Where to go for more information
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