Help to Buy is a government scheme to help first-time buyers get a property with just a 5% deposit. You can borrow 20% of the purchase price (40% in London), interest free for five years. This scheme opens to new applications from 16 December 2020 and will run until 31 March 2023. This guide will help you understand how this scheme can help you get on the property ladder and how similar schemes work in the different countries of the UK.
How does Help to Buy work?
The Help to Buy scheme offers an equity loan where the government lends first-time buyers in England money to buy a newly-built home.
This must be used to buy your main residence and can’t be used to buy a second home or a buy-to-let property.
You need a deposit of at least 5% of the purchase price. You can borrow 20% (40% in London) of the purchase price. This amount is interest free for five years.
The maximum purchase price for a Help to Buy property depends on what region of England you live in. You can’t use Help to Buy to purchase a property above these limits.
| Region |
Help to Buy price cap |
| North East |
£186,100 |
| North West |
£224,400 |
| Yorkshire and The Humber |
£228,100 |
| East Midlands |
£261,900 |
| West Midlands |
£255,600 |
| East of England |
£407,400 |
| London |
£600,000 |
| South East |
£437,600 |
| South West |
£349,000 |
Applications for the Help to Buy equity loan open for new applications on 16 December 2020, and will run until 31 March 2023.
The equity loans will not be available until 1 April 2021 and the scheme is only open to first-time buyers.
Find out more about Help to Buy and how to apply on the
Gov.uk website.
National differences
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Got a question?
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Start a webchat online or call us on 0800 138 1677.
The Help to Buy scheme is available in England only. If you live elsewhere in the UK, you can use:
Northern Ireland has a different equity sharing scheme called
Co-Ownership.
If you’ve not yet completed your purchase
If you applied and were accepted for the Help to Buy equity loan, but have not yet completed your purchase, the deadline depends on why the purchase has been delayed.
Most people who took out the Help to Buy equity loan before 2020 will have to complete their purchase by 31 March 2021. The homebuilder must have completed construction so it is ready to move into by 28 February 2021.
If you reserved your home by 30 June 2020 and your purchase has been delayed by the coronavirus, you must complete by 31 May 2021. Construction must have been completed by 30 April 2021.
You should check with your homebuilder and solicitor to ensure you can meet these dates.
Find out more about what you should do if you’ve not yet completed your purchase on the
Gov.uk website.
How the Help to Buy equity loan works
- 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 up to the regional limits.
- 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 is interest free for five years.
- After five years, you’ll be charged 1.75%. After the sixth year this the interest on the equity loan will increase by the Consumer Price Index (CPI) plus 2% (1% if you took the equity loan before December 2019).
- 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).
Example
Cost of home - £200,000
| Cost name |
Percentage of total |
£ value |
| Your deposit |
5% |
£10,000 |
| Equity loan |
20% |
£40,000 |
| Mortgage |
75% |
£150,000 |
| TOTAL |
|
£200,000 |
Interest rates for paying back your interest free loan
Once the interest free period comes to an end the interest rates charged on your loan will go up each year in April by the Consumer Price Index (CPI), plus 2%.
Years 1-5: no fees
Year 6: 1.75% of the loan
Year 7 onwards: 1.75% + CPI + 2% (1% if you took the equity loan before December 2019)
These charges do not go towards paying off the government loan.
The table below shows typical interest rate rises on your government loan.
Example
| Year |
Interest rate |
| 1 |
No Interest Payments |
| 2 |
No Interest Payments |
| 3 |
No Interest Payments |
| 4 |
No Interest Payments |
| 5 |
No Interest Payments |
| 6 |
1.75% |
| 7 |
1.82% |
| 8 |
1.90% |
*This assumes CPI is constant at 2% and no reduction in the loan amount
From the table your first interest payment will be 1.75% of the amount you borrowed Your interest will go up each year in April by the Consumer Price Index (CPI), plus 2%.This is worked out by multiplying the loan amount (purchase price x equity loan percentage). The equity loan percentage will reduce if any part repayment are made.
The interest rate increases every year by adding CPI plus 2%. The interest rate from the previous year is then used to work out the interest rate rise for the following year.
For example, the following shows how any interest rate increase is calculated assuming CPI remains constant at 2% and no payments are made to pay off the government loan:
1.75% (the rate in year 6) + 0.07% (1.75% x (0.02 CPI + 0.02%) = 1.82%
1.83% (the rate in year 7) + 0.07% (1.83% x (0.02 CPI + 0.02%) = 1.90%
When you sell your home
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:
Example
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 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.
