The Help to Buy Scheme Explained

Expert Guides

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).

All you need to know about buying a new build home

Focusing on a new build property is another choice available to homebuyers - such as prioritising a detached property, townhouse, cottage or perhaps a bungalow. And, whereas some prefer to opt for period features or character charm in a second hand home, there is also the new build route – a blank canvas to put your own mark on it.

Weighing up the pros and cons of both is the best way to decide which route to take and here are some advantages if you decide to buy a new build.

  1. Help To Buy Schemes

There are various Help To Buy schemes available to you. Help to Buy is a government initiative that’s helping first-time buyers and those moving home buy a brand-new home with just a 5% deposit. As long as the property you want to buy is a new-build home valued at less than £600,000, you could qualify for the scheme.

We’ll talk you through our lenders’ criteria and find the right product for you so you can start looking for your perfect home with absolute confidence and peace of mind.

2. No Chain

This can be a very attractive reason to choose a new build home – removing a sometimes-stressful element of moving property. Alleviating the chain means you stay in control and won’t be at the mercy of other buyers and the house is ready to move into!

3. Blank canvas

The property will be untouched by any previous owners, leaving you with a blank canvas to work with and style up as your own.

4. 10 Year warranty, guaranteed!

New build homes come with a 10-year protected warranty, so if anything went wrong, you’re covered for up to 10 years. This, obviously, isn’t the case when you built a ‘second hand’ home.

5. Eco-friendly

The day to day running of a household can be quite expensive once you’ve broken it down by electricity, water rates, heating etc. All new builds are built to the latest building standards, which includes water-saving systems, low CO2 emissions, double-glazed windows, energy efficient boilers and insulation. New builds will be cheaper to run and maintain and the common sense approach to take.

6. Excellent quality

New build houses are built to an excellent quality, from the new fixtures and fittings to lightweight trusses in the roof, double glazed windows and insulated walls. The builders also work closely with local planners and the Environmental Agency to ensure they are creating a development that isn’t at risk of flooding.

To speak to one of our Mortgage & Protection Advisers that specialises in new build, please call us on 08454 500200, visit www.chartersfinancialservices.co.uk or email hello@chartersfinancialservices.co.uk.

How much does Help to Buy cost?

The Help to Buy: Equity Loan scheme is a government backed initiative to help get first time buyers onto the property ladder.

The scheme is designed to be more affordable for first time buyers, as you only need least a 5% deposit for your new home. The government will lend you up to 20% of the value of the property (40% in London) and you’ll need to take out a mortgage for the remaining 75% (55% in London).

Each month you’ll make repayments on both your Help to Buy loan and your mortgage. Here’s an illustration of what you would pay on the Help to Buy initiative each month:

  • Purchase price: £310,000
  • Less deposit: £15,500
  • Help to Buy equity loan: £62,000
  • Mortgage: £232,500
  • Your monthly repayment: £806.87*

*This illustration represents a capital repayment mortgage over a 30-year term on a two-year fixed rate of 1.54% with a £999 arrangement fee and a free basic mortgage valuation. Example rates vary daily so this illustration does not constitute an offer and any mortgage is subject to full underwriting, affordability and credit scoring via the lender. Both this rate and the product were valid at the time of writing.

Don't forget, there are solicitors fees, moving fees and protection costs that you need to budget for too!

Remember that a mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

If you want to find out more about Help to Buy or would like to know if you’re eligible for a Help to Buy: Equity Loan, contact our expert mortgage advisers and we’ll talk you through your options. Call us on 08454 500200 or click here to get in touch.

The new Help to Buy Equity Loan: here’s what you need to know

Are you considering using the Help to Buy Equity Loan scheme to buy a home? Then it’s essential you know all the details...

What are Help to Buy Equity Loans?

Launched by the government in 2013, Help to Buy Equity Loans are aimed at helping those who are struggling to get on the property ladder.

There are different Equity Loan schemes for England, Greater LondonWales and Scotland, and they all vary slightly.

In a nutshell, with the Help to Buy Equity Loan scheme:

  • The government will lend you up to 20% of the cost of your new build home. This increases to up to 40% of the cost if the property is in London. This is called an equity loan.
  • You’ll need to save a minimum of 5% of the purchase price as a deposit, and you can use contributions from your Help to Buy ISA or Lifetime ISA to pay this. The remaining 75% comes from a specialist Help to Buy mortgage product.
  • As you’ll have a larger deposit, you won’t need to raise as much of a mortgage. This means your initial mortgage payments will be lower. It should also help with affordability calculations when you apply for your mortgage.
  • The equity loan is interest-free for the first five years and you don’t need to make any repayments on it during that time.
  • The current scheme is open to first time buyers and existing home owners. It’s also only available on new build homes, up to a maximum purchase price of £600,000.

What are the specifics of the Help to Buy Equity Loan scheme?

• Only first time buyers will be able to use the new Help to Buy Equity Loan scheme.
• New regional price caps will be introduced. As a result, the maximum value of homes that can be bought with the scheme's help will be dramatically cut in most areas. The caps have been set at 1.5 times the average first time buyer price in each region (as of Autumn 2018).

What are the regional price caps?

Region 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

 

What are my other options?

While Help to Buy has been popular with first time buyers, it’s not the only route available if you have a small deposit.

  • 95% mortgages: The average rates on mortgages that require just a 5% deposit have reduced significantly in recent years. This has made them considerably cheaper. And unlike with the Help to Buy Equity Loan scheme, you won’t be restricted to new build properties. However, as James explains above, you may struggle to get a high loan to value mortgage on a new build property.
  • Shared Ownership: Also known as ‘part buy, part rent’, this scheme allows you to buy a share of a property and pay rent on the rest. And as you'll only need a mortgage for the share you’re purchasing, you'll need a much smaller deposit than if you were buying the home outright. Find out more about Shared Ownership here.
  • Guarantor mortgages: This is when a parent or close family member uses their own property or savings as security against your loan. This means lenders may accept a smaller deposit than usual and sometimes they won’t require any deposit at all.

 

For more information about the Help to Buy Equity Loan, feel free to get in touch with our friendly team of mortgage advisers.

We've just arranged a remortgage through Charters. Gavin Torpey explained the whole process clearly, and found us a good deal. Excellent service, highly recommended!

Craig B

November 2020

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