The Help to Buy scheme is a government scheme which can help home buyers get a new build property with a 5% deposit.
For the Help to Buy Scheme in London please see our separate London Help to Buy page.
The Help to Buy scheme works by the government offering an equity loan to home buyers for 20% of the value of the property. The purchaser then puts a minimum 5% deposit down and gets a mortgage for the remainder of the purchase balance.
The property must be a new build and have a purchase price of £600,000 or less and be from a developer registered with Help to Buy.
The Help to Buy scheme described here applies to England only. There are separate schemes in Scotland, Wales and Northern Ireland so please visit those pages on our website.
How it works…
In essence you borrow 20% of the purchase price on an interest-free basis for the first five years, as an equity loan. This 20% loan must be repaid after 25 years or if you sell the property before then.
Purchase Price: £200,000
Help to Buy Equity Loan: £40,000
Your Deposit: £10,000
Mortgage required: £150,000
As this is an Equity Loan if the value of your property increases so does the pound value of the loan amount. On the flip side of this, if the value of your property decreases, so does the pound value of the loan.
- A property purchased for £200,000 would have a Help to Buy equity loan of £40,000 (20% of the purchase price). The property is then sold 3 years later, and the loan has not been repaid. The property sells for £240,000 so 20% of £240,000 means an equity loan repayment of £48,000.
- A property purchased for £200,000 would have a Help to Buy equity loan of £40,000 (20% of the purchase price). The property is then sold 3 years later, and the loan has not been repaid. The property sells for £160,000 so 20% of £160,000 mean an equity loan repayment of £32,000.
What happens after 5 years…
If you have not repaid in full your Help to Buy equity loan after five years, you will be required to pay an interest fee of 1.75% of the amount of your equity loan at the time you purchased your property, rising annually from the fifth anniversary of your equity loan by the increase (if any) in the Retail Price Index (RPI) plus 1%.
RPI figures are put together by the Office for National Statistics.
A monthly management fee of £1 is paid from when you first purchase. These fees are payable to the Homes England’s Mortgage Administrator. The interest fee payment is not made for the first five years, after this date a monthly fee will be payable.
To illustrate the above:
Years 1 to 5 after purchase: no fees are payable
Year 6 after purchase: 1.75%
Year 7 after purchasing and onwards: 1.75% + RPI + 1%
These fees do not go towards paying off the government loan and the full loan must be repaid within 25 years or when the property is sold, if earlier.
You can repay part of the equity loan back at any time, but it is subject to a minimum repayment of 10% of the market value of your home, at that time.
How long is the scheme available for…?
The Help to Buy scheme has been extended to stay in place from 2021 until 2023. However, this extension will only apply to first time buyers.
From 2021 there will also be regional differences in the maximum purchase price of a property, so this is something to discuss with your mortgage broker.
- Help to Buy cannot be used to purchase a second home.
- Help to Buy cannot be used to purchase a property to be rented out.
- The mortgage must be on a repayment basis.
There are alternatives to the Help to Buy scheme for example many people opt to purchase the property using a 90% or 95% mortgage instead. If this is something you would like to discuss, please get in touch.
The Help to Buy scheme can seem complicated so if you need any help please get in touch to discuss your requirements now.