The help to buy scheme is a first-time buyer mortgage to help those living in the UK make their first steps on the property ladder. With property prices still high, trying to save up a 20% deposit may be impractical, even if you are earning a good wage.
This scheme could initially only help you purchase a home with a small deposit as long as the house was a new build and the house builders part of the scheme. However, as of October 2013 the scheme has expanded to include older properties and all buyers, not just first time ones.
AM I ELIGIBLE?
As a minimum, you must:
Have a deposit saved of 5% of the property value at least
Be buying a home to live in, rather than a house you intend to rent out or use as a holiday home
Be buying a home for less than £600,000
You will receive an equity loan when you take part in a ‘help to buy’ scheme. If you are unsure of exactly what this is, here it is broken down:
You can borrow a maximum of 95% of the property’s price from a mortgage lender.
Any mortgage borrowing above 80% of the property’s value will be guaranteed by the government.
These details do not have to be arranged by you as the borrower; on the surface it will be no different from any other mortgage.
For instance, if you bought a house for £200,000, you would need £10,000 to put down yourself, a mortgage lender would give you £150,000 and the government would loan you £40,000.
WHAT WILL I NEED TO PAY BACK?
The equity loan is initially interest free for five years, and then an admin fee will be applicable. The fee will start at 1.75% of the loan for the sixth year, then rise every year after according to Retail Prices Index, plus 1%.
These costs will be additional to your monthly mortgage repayments. The equity loan from the government will also need to be repaid, so unless your circumstances change and you are able to opt to repay part of it early, the admin fee could end up being pretty pricey over time.
CAN I SELL THE HOUSE?
The house will be in your name so you can sell up as soon as you wish. You will own 100% of the property, as this is not a shared equity scheme. The loan is instead similar to a secured loan, so the Help to Buy agent has a claim to part of your home’s value. You will still have to pay back the equity loan, whether this is when you sell your home or at the end of your mortgage period.