Help to Buy Scheme

Is a government scheme which can help first time buyers and home movers to purchase a new build property with just a 5% deposit, making it more affordable for you to purchase your dream home.

How does the scheme work?

Help To Buy

It is an equity loan offered by the government which you use to support your deposit, which is a minimum of 5%. The equity loan is registered as a 2nd charge against your new build property and the maximum term of the loan is 25 years. It is an interest free loan for the first 5 years and you can borrow up to 20% of the purchase price, however this can be up to 40% if you live in London. The remainder will be borrowed from a mortgage lender, on a repayment basis.

Key points to remember:-

  • The purchase price cannot be more than £600,000
  • The scheme is open to everyone up to until 2021.
  • From 2021 to 2023 the scheme will be restricted to first-time buyers purchasing new build properties.
  • From 2021 new regional price caps will be introduced, which may reduce the maximum value of homes that can be bought through this equity loan scheme.
  • If you wish to use Help to Buy you can only take out a repayment mortgage

Example

Cost of home – £150,000

Cost name Percentage of total £ value
Your deposit 5% £7,500
Equity loan 20% £30,000
Mortgage 75% £112,500
TOTAL £150,000

When a Help to Buy equity loan cannot be used

To purchase a 2nd home or a property you wish to rent out in the UK or anywhere else in the world.

If you are married and your current mortgage is your sole name, your partner, who is unnamed on the mortgage is unable to purchase another property using Help to Buy.

If you are part-exchanging your existing property with the new build company.

How do you repay the interest for the equity loan back to the government?

The first five years of the loan is interest free, in year 6 you will then start to pay the interest only back at a rate of 1.75%, this will then rise by inflation based upon on the Retail Price Index (RPI) plus 1% each year. (RPI figures are put together by the Office for National Statistics.

Example:

Years 1-5: no fees
Year 6: 1.75% of the loan
Year 7 onwards: 1.75% + RPI + 1%
These fees do not go towards paying off the government loan.

There are occasions when the equity loan will need to be repaid back to the government, these are as follows:-

If you reach the end of the equity loan term, maximum 25 years or if you sell your home. When you sell your home or the mortgage is paid off, the equity loan will need to be repaid and the equity share will then be based upon the current value of your home, therefore if your property has decreased or increased since this was purchased, then the 20% share will of either increased or decreased.

You can repay the equity loan back at anytime, however the minimum repayment is 10% share or the full 20%, again this will be based upon the value of your property at the time you chose to repay this. The value will be determined by Help to Buy agent, who you will pay to value your home.

How do we apply for a Help to Buy loan

There are national differences, the Help to Buy scheme is available in England only, however if you live elsewhere in the UK you can use the following

  • Help to Buy Scotland
  • Help to Buy Wales
  • Help to Buy Northern Ireland

At Independent Mortgage Brokers, we can assist with the full Help to Buy application from start to finish, this is separate to your mortgage application and based upon household income. We can check if you meet the affordability criteria and then apply for the equity loan on your behalf. The following steps give you a brief indication of the process.

Step 1 – Completion of the Property Information Form – including signed declaration and direct debit mandate. The direct debit mandate is required to set up a direct debit for £1 per month, this is from day 1.

Step 2 – Independent Mortgage Broker will forward your help to buy application to the relevant Help to buy agent on your behalf.

Step 3 – Once your application has been approved, the Help to Buy agent will issue your Authority to Proceed, a copy will be sent to both you and your solicitor.

Step 4 – When your solicitor is in a position to exchange contracts, they will request Authority to Exchange from the Help to Buy agent.

As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments

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