Help to buy is a government programme which was set up to make it easier for first-time buyers to get on the property ladder with only a 5% deposit.
How does the Help to Buy Scheme work?
Help to Buy involves the government – through authorised agents – offering first-time buyers, and existing homeowners, an equity loan to buy a newly built home.
The scheme is open to almost all people within Great Britain (not Northern Ireland, where there is a different, separate, Equity Loans scheme). However, there are a few eligibility criteria:
• You can’t use the scheme to buy a second home, or a property you intend to let out
• If you use the help to buy scheme to part fund your property, you can only take out a repayment mortgage (not an interest-only mortgage);
• You can’t spend more than the set price limits for each nation (see below).
• In England, you cannot spend more than £600,000 on your property if you use Help to Buy.
• If you are buying in Scotland, the limit varies depending on the value of your property and when the application (not the sale) is completed. Detailed advice is available from the Scottish government website.
• In Wales, the maximum value is £300,000.
How Help to Buy works
Help to Buy was designed to help people who are struggling to save for a deposit to get a mortgage, which they can use to buy a property. As eligibility requirements for mortgage lenders have become more stringent, the scheme allows buyers to continue to access finance with only a 5% deposit.
Put simply, once you’ve saved a deposit equal to 5% of the value of the home you want to buy, the government will give you an equity loan equal to 20% of the cost. This combined pot then effectively becomes a 25% deposit, meaning you can obtain the remaining 75% from a traditional mortgage lender.
You don’t pay any interest or fees on the Help to Buy equity loan you receive from the government for the first five years. In the sixth year, you’ll be charged interest of 1.75%, and after that the fee rises by inflation (the RPI rate) plus 1% each year.
It’s important to remember that this interest does not go towards the cost of paying back the Help to Buy loan. Instead, when you sell your home, you will repay the equity loan plus a share in the increase of the value of the property.