Buying a first home is easier than ever with a Help to Buy mortgage

23rd March 2022

The advent of 2022 marked continued buoyancy for homebuyers within the property market, which has seen surging house values and frenzied sales dominate one of the most bizarre periods of our time. In 2021, first-time buyers had increased by more than a third, year on year – that’s a 35% rise to 409,370 new purchasers and the largest recorded leap in over 15 years.

However, the flipside of record prices, frenetic bargaining and pandemic lifestyle changes was the negative impact on many of those looking to make their first foray onto the property ladder. In January 2022, Halifax, the UK’s leading mortgage lender, revealed the average age for a first-time buyer’s home purchase had risen to 32 over the past year; over 30 for every region in the country.

The reality is that escalating house prices mean an even longer wait when it comes to owning your own home. The advantage gained by full stamp duty relief on homes worth up to £300,000, and with a reduced rate for homes valued up to £500,000, has certainly played a significant role for first-time buyers, but it’s the Help to Buy scheme that’s boosting the outlook for them today.

Almost 340,000 homes have been purchased using the government’s Help to Buy: Equity Loan scheme since it was launched in 2013. In 2021, new restrictions limited the scheme to first-time buyers only. The initiative will run until 2023 so there’s plenty of scope for many new borrowers to take advantage of Help to Buy yet, especially with the support of the Bank of England that’s currently considering how to ease mortgage affordability.

What’s Help to Buy and who qualifies for the equity loan scheme?

The Help to Buy: Equity Loan scheme is designed to help home buyers make a more affordable first home purchase by increasing the size of your deposit and making you eligible for a more attractive mortgage interest rate. The Help to Buy loan is taken out as a stake in your property so, as the value of your home rises, the sum you’ll need to pay back will increase in line with that rise. An up-to-date market valuation report from a chartered surveyor will determine the cost of any repayment you make.

Under the terms of the Help to Buy scheme, your first home must be a new-build property up to the value of £600,000. The property must be sold by a Help to Buy registered homebuilder and should be the only home you own and live in.

You’ll need to fund a minimum deposit of 5% of the purchase price of your first home and arrange a repayment mortgage of at least 25%. The equity loan will cover between 5% and 20% of the purchase price (40% in Greater London).

The great news is that a Help to Buy loan is completely interest-free for five years and, after that, an interest rate of 1.75% will be applied and will increase every year in April. Annual interest is spread over the year in monthly payments. If you want to avoid paying any interest at all, you’ll need to repay your loan – that cost will be determined by the current market value of the government’s stake in your home. You can also repay part or all of your Help to Buy loan early without any financial penalty.

All Help to Buy loans must be paid off in full at the end of the term, which is usually 25 years. You’ll also have to repay if when you sell your home or when you pay off your repayment mortgage in full.

How much can I borrow with the Help to Buy scheme?

New regional limits introduced in 2021 mean properties can’t cost more than 1.5 times the average first-time buyer house price in that area. Property purchase prices range from £186,100 in the North East to £600,000 in London. The maximum Help to Buy loan is 20% or £120,000, while in Greater London the maximum loan is 40% or £240,000.

However much you want to borrow, you’ll need to meet eligibility criteria and pass affordability tests to ensure you can afford any interest payments that may become due. There’s a monthly management fee of £1 that will need to be paid from the day you take out your Help to Buy loan until it’s all repaid.

What happens to my Help to Buy loan if I want to sell my home?

If you decide to sell your home, you’ll have to pay the equity loan percentage of your property’s market value – or the sale price you agree if that’s higher than its value.

How do I apply for a Help to Buy: Equity Loan?

You need to talk to the experts in Help to Buy mortgages! We have all the advice and support you need to access the most competitive Help to Buy mortgages available. We’ll talk you through the process and find a Help to Buy loan that will help you save money and get your first home purchase off to the very best start.

Call Charters Financial Services on 08454 500200 to get the ball rolling or, for more information read our expert guides here (https://www.chartersfinancialservices.co.uk/find-the-right-mortgage/help-to-buy/expert-guides/) or visit the government website here (https://www.gov.uk/help-to-buy-equity-loan).

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Steph and Cara recently helped secure a mortgage on a new home for me and my partner. They provided good advice in both a prompt and friendly manner. Would definitely reccomend them to anyone who would like the stress taking out of the mortgage application process.

Carl F

April 2020

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