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New Help To Buy Mortgage Scheme In The UK For First-Time Buyers

Are you looking to buy your first home? Are you ready to move up the property ladder? Help to Buy could help you. Help to Buy is a government-backed mortgage scheme that helps buyers to purchase a new build home with as little as a 5% deposit.

Whilst there were recently two schemes, the Help to Buy Equity Loan scheme (which launched in 2013) closed on 28 February 2021. The newer Help to Buy Equity Loan (2021-2023) scheme launched in December 2020, for purchases from April 2021, and will run until 2023. This is only available to first-time buyers.

Key Features of the Help to Buy Equity Loan (2021 – 2023) scheme.

  • You get together your 5% deposit.
  • The government lends you up to 20% of the property value (up to 40% if buying within Greater London).
  • You’ll need to secure at least a 25% mortgage.
  • The loan is interest-free for the first 5 years and then charged thereafter.
  • It applies to new build properties only.

It’s worth knowing too that the government has set regional price limits based on the average first-time buyer price in each region to reduce the amount that needs to be borrowed.

It is important to highlight that the Help to Buy Equity Scheme is available only for First-time buyers. Home-movers can’t apply for the HTB equity loan. Also, it must be for residential purposes only. You can’t use the HTB scheme to buy a property to rent out.  

How do I pay back the Help to Buy London equity loan?

You must pay back the loan after 25 years or when you sell your home – whichever comes first. You will not be charged any interest on the 40% loan for the first five years of owning your home. However. a management fee of £1 a month will be applicable from the date of purchase for the duration of the equity loan. From year six, a fee of 1.75% is payable on the equity loan, which rises annually by CPI (Consumer Price Index) inflation plus 2%.

Do I need to find a new-build property?

The property must be a new build to apply for the standard help to buy an equity loan. With shared ownership, you can buy a share of a home between 25 and 75 percent of its value if you can’t afford a mortgage on the whole property. Rent is paid on the remaining share, your slice of which can be increased when you can afford it. For shared ownership with an HTB equity loan, the property does not have to be newly built – you can buy resales through housing associations.

How to utilize HTB ISA to source my deposit?

The Help to Buy ISA is a savings account for first-time buyers which the Government will top up by 25 percent of what you save up to a maximum bonus of £3,000. The minimum bonus is £400 so you must save at least £1,600 to receive a top-up. The accounts closed to new customers on 30 November 2019 but existing ones can continue saving until November 2029. The Lifetime ISA is an alternative option for first-time buyers.

Can I re-mortgage my property while having an HTB Equity loan in the background?

If you are planning to re-mortgage your property at the end of your current fixed deal end and have an HTB equity loan in the background, it would be difficult to find a new lender. High-street banks and building societies usually don’t like to accept the re-mortgage application when you have an HTB equity loan in the background. It is an indication of a higher risk to the lender. The Government has a stake in the property in case of repossession.

Therefore, if you are planning to re-mortgage your property, it might be a better idea to redeem the HTB equity loan first and then consider the new re-mortgage. If you are not in a position to settle the full help to buy an equity loan before the current deal end date, it would be better to apply for a product switch with the existing lender. It might be a suitable option as most high-street lenders do not accept re-mortgage applications without HTB loan redemption.

An alternative option would be to raise extra cash while re-mortgaging to redeem the HTB equity loan. Lenders would be okay with this strategy as the extra cash would be used to redeem the loan from the Government. It would give you the opportunity to avoid paying interest on the HTB loan after the first five years while benefiting from the lower mortgage payments with the new lender.

An experienced mortgage adviser would check your income and other circumstances to calculate the maximum loan amount affordability. They would suggest you the most suitable option and when to redeem the HTB equity loan based on your personal circumstances.

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Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of our Independent Mortgage Brokers to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisers working for or with Independent Mortgage Brokers are fully qualified to provide mortgage advice and authorised and regulated by the Financial Conduct Authority. All our independent Mortgage Brokers will offer advice specific to you and your needs and circumstances. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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