Help To Buy
Help To Buy Overview
You can use the Help to Buy scheme to purchase a new build home in the UK whether you are currently a homeowner or a tenant. This is a great scheme which sees the government putting 20% towards the house purchase price via an equity loan in England and Wales or up to 40% within Greater London. This means your mortgage lender has to put much less towards the property - usually around 75% of the value. This has two major positive impacts on your home ownership.
1. Help to Buy low rate mortgages.
The higher the proportion of your mortgage to the property price the higher the interest rate tier on your mortgage tends to be. Because 20% of the purchase is funded by the government equity loan, any mortgage will be at or below 75% loan to value thus giving you access to some very competitive, low rate mortgage plans. There are many mortgage lenders available for this product and some offer mortgages for people who have a low credit score or have incurred some bad credit.
2. Plenty of time to pay back the equity loan.
You only have to repay the amount borrowed through the Help To Buy equity loan after 25 years or if you sell your home. There is a nominal £1 per month administration fee on the loan. Interest is due on the loan at 1.75% (increasing by any percentage increase in RPI plus 1% each year) but repayments do not start until 5 years
after you buy the property. This helps avoid cash flow stresses in the early years, giving you time to get established in your home, build some savings etc.
Speak to our UK help to buy mortgage team on free phone 0800 977 4701
or complete our short, no credit check on line enquiry form
Help to Buy scheme examples.
You buy a new build property in Manchester priced at £250,000 and sell it for £300,000 4 years later.
Initial government equity loan of 20% of value = £50,000
Minimum deposit required from you at 5% = £12,500
A mortgage lender agrees mortgage at 75% loan to value = £187,500.
For the first 5 years no interest is due on the equity loan, so after 4 years you will have just been paying back your repayments to the mortgage lender.
You sell the property for £300,000. The key factor here is the the government own 20% of your home, so when you sell they will receive 20% of the sale price. In this case upon sale you would pay back to the government 20% of £300,000 = £60,000. Out of the remaining £240,000 from sale you would pay back the outstanding mortgage balance at the time (which will have come down to some degree) and any other fees etc associated with the sale. Any funds left over are free for you to use as you wish. Most commonly this would be put towards your next property.
Paying back your equity loan and the help to buy agency.
The help to buy equity loan gives the government a twenty percent share of your properties value. In London, because of the higher house values, this may be up to 40% of your homes value. The equity loan has a term of twenty five years after which you will need to repay it - so you should consider options such as saving ready to pay this back.
If you sell the home at any point before the 25 year term then you must give the percentage of the sale to the help to buy scheme administrators. For example if you sold your property in London £500,0000 and you originally had a 40% equity loan from the help to buy scheme you would pay back £200,000 to the government, even if you borrowed less than this at the time of borrowing the money.
From the end of year 5 to the end of year 25 you will pay interest only on the help to buy equity loan. This is set at 1.75% basic rate but it is increased when and if the retail price index increases by that percentage plus 1%.
Help to Buy limitations and what you must not do.
The help to buy equity loan scheme can only be used for your main residence and you must provide a minimum of 5% deposit yourself towards the purchase, it must also be a new build home. The maximum price of the home is £600,000 in England and £300,000 in Wales. You will see advertisements for these by multiple builders where they are constructing new homes in the area you are interested in moving to. The scheme is set to end in 2021, but will also end if the pot of money set aside for Help to Buy is exhausted.
If you are already a homeowner you must sell your current home, i.e. you cannot do what is termed a `let to buy`, where you keep your previous home and rent it out on a buy to let basis. Our customers can still do this outside of the Help to Buy offering, but you will need to be able to demonstrate affordability and to produce a larger deposit.
The government will lend you 20% outside London and 40% inside London, so any short fall will need to be funded by a mortgage. There are plenty of mortgage lenders, covering both prime and subprime mortgage lending who will lend to buy new build homes under this scheme. Most of the adverse credit mortgage lenders will not deal with the public directory but get their business via approved mortgage advisers such as ourselves.
Help to Buy Scotland.
The Scottish government offer a similar scheme to help residents of Scotland also buy new build homes. The main difference in terms of amount available is that the Scottish Help to Buy scheme limits the percentage available by the equity loan to 15% loan to value. The maximum property value you can look to buy in Scotland via this scheme is £200,000.
The 4 stages of buying a home with the Help to Buy equity loan scheme.
Your home may be repossessed if you do not keep up repayments on a
mortgage or any other debt secured on it.
Check that any mortgage will meet your needs if you want to move or
sell your home or you want your family to inherit it. If you are in any
doubt, seek independent advice.
One: Find a new build property in your target area that you would like to apply for and speak to the builder and the local help to buy agent to establish your eligibility and apply for the scheme.
- Two: You will hopefully receive the authority to proceed from the help to buy agent and find a property you want from the builder. You will also need a mortgage for the rest of the purchase price unless you have enough capital to cover the remainder without needing a mortgage. If taking out a mortgage your mortgage lenders and the help to buy agent will check you can afford the property. You will need to sign a declaration that the new build new home will be your only residence. You must not break this rule otherwise the equity loan will become payable immediately. You will also need a solicitor to help with the legalities and conveyancing associated with buying a home.
Three: Your mortgage lender will make you a mortgage offer and contracts are exchanged and your solicitor will establish that you are now legally bound to buy the property by a mutually agreed set date.
Four: Purchase completion, ownership transfer and moving in.
Upon completion your mortgage lenders advances your funds as do the Help to Buy agents who pay their share to the builder, your details will be registered with the mortgage adminstrators for the help to buy scheme for future payments etc. You will need to pay a £1 per month fee by DD to the scheme, as well as any legal, product or advice fees due. You will also need to start paying your mortgage lender on the dates agree with them.
In terms of ownership you will be registered by your solicitor with land registry as the home owner and you move in, there will be two charges registered on your home. The first charge is for the mortgage provider to protect them in case you default on your repayments. The second charge is for the governments equity stake in your home and will be written as a percentage of your home’s value being due to them upon sale, death or after 25 years.