Your home may be repossessed if you do not keep up repayments on your mortgage
Help to Buy
The Help to Buy mortgage scheme means first-time-buyers and home movers that also qualify for the scheme only need to put down 5% of a home’s value for a deposit. The government will then step in to effectively boost this amount with an equity loan.
The average property purchase price for first-time buyers using the Help to Buy scheme is £214,750, and the average purchase price for home movers using Help to Buy is £272,500 – according to Ministry of Housing, Communities & Local Government data from 1 April 2013 to 31 March 2018.
Help to Buy mortgages
The government-backed Help to Buy schemes are designed to help first-time buyers and those looking to move up the property ladder.
There are two different schemes under Help to Buy – an equity loan and a shared ownership scheme.
The government backed Help to Buy ISA can also be a good way to save for a home – the government has promised to boost your savings by 25% if you save up to £200 a month towards buying a home.
Help to Buy: Equity Loan
With the Help to Buy Equity Loan scheme, a buyer puts down a deposit of at least 5% on a new-build property and the government lends up to a further 20% - or 40% if you’re in London - creating a total deposit of 25%, or 45% for Londoners.
This part of the scheme doesn’t apply to properties that aren’t newly-built, and there’s a maximum purchase price of £600,000.
The government's part of the loan is interest-free for the first five years.
From year six, you’ll be charged interest at 1.75%. The rate increases every year after that in line with the Retail Prices Index – RPI – inflation rate, plus 1%.
When you come to sell the property, as it’s an equity loan - rather than a flat amount - you will have to pay the government back 20% of your home’s value at that point. This is the case whether the value has risen or fallen.
You can repay the equity loan at any time before this though, without penalty, so long as it’s in chunks of at least 10% of your home’s current market value.
The median Help to Buy equity loan value taken out by first-time buyers was £42,399, and £53,999 for home movers – according to Ministry of Housing, Communities & Local Government data from 1 April 2013 to 31 March 2018.
Help to Buy: Shared Ownership
Shared ownership is a Help to Buy backed scheme that helps people who can’t afford a mortgage on 100% of a property. Shared ownership allows you to buy a share of your home - between 25% and 75% of the home’s value - and pay rent on the remaining share.
You may have the option later on to buy a bigger share of the home. The scheme is available in England only and you can read the full details here.
Which banks offer Help to Buy?
You’ll need to contact a Help to Buy agent in the area you want to buy, and use a participating lender to use the scheme. Participating lenders include:
- Chorley Building Society
- Cumbria Building Society
- Leeds Building Society
- Newbury Building Society
- Teachers Building Society
- Virgin Money
- Post Office
- Lloyds Bank
London Help to Buy explained
The government’s London Help to Buy scheme launched on 1 February, 2016.
Prospective buyers in London will still need to put down a 5% deposit towards a new-build home – just like the Equity Loan scheme across the rest of the country – but if you’re buying in London, you’ll be able to borrow up to 40% of the property value instead of the 20% that’s available in the rest of the country.
That means once you factor in the 5% deposit you’ve saved, you’ll have 45% of the value of the property to put down. You’ll need to take a mortgage out for the remaining 55% of the cost.
Your mortgage must be for at least 25% of the property's value.
The scheme only applies to new-build properties worth up to £600,000 and the property you are buying must also be your only home. You cannot use Help to Buy to purchase a buy-to-let property.
You’ll only qualify for the 40% loan if you’re buying in any of the London boroughs or the City of London.
The percentage of Help to Buy equity loan to value that Londoners claim - according to Ministry of Housing, Communities & Local Government London Help to Buy completions data from 1 February 2016 to 31 March 2018.
Which lenders have signed up for London Help to Buy?
There are a number of banks that offer London Help to Buy. Lenders that currently offer the government scheme include:
- Al Ryan Bank
- Bank of Ireland (Northern Ireland only)
- Bank of Scotland
- Lloyds Bank
- Ulster Bank
- Virgin Money
More information on Help to Buy
If you are interested in Help to Buy, you’ll need to start by contacting a Help to Buy agent in the area you want to buy, as they manage the scheme rather than mortgage lenders.
Visit the government's Help to Buy website and click on the “Equity loan” tab to find details of Help to Buy agents, and more information on how the scheme works.
You can find out more about government schemes to help you buy a home here.
When will Help to Buy end?
The Help to Buy equity loan scheme is due to finish in 2021.
Comparing mortgage quotes
Using a mortgage comparison tool could help you get a better idea of the house value you could afford and how much of a loan you’d need. By using MoneySuperMarket’s mortgage comparison tool, you can play around with the tool to see how much of a loan you would need from a lender to then add to your Help to Buy loan and deposit to then compare mortgage quotes.
You’ll be able to compare mortgage quotes based on initial monthly costs, interest rates, the duration of the deal, the maximum LTV and any product fees you may need to pay for each deal. It’s important to remember that any quotes you see won’t take into account the Help to Buy loan repayments you’ll need to start paying back after five years, so you’ll need to plan your budgeting to make sure you could afford both sets of repayment.
The comparison tool doesn’t take into account your financial situation or your credit history, which means that any LTV or interest rates you’re offered when you come to apply for a mortgage may be different.