Help to Buy Mortgage

What is a Help to Buy mortgage?

Help to Buy is a government scheme to help people in England get on the property ladder, usually for the first time. With the Help to Buy Equity Loan scheme, you only purchase a percentage of the property up front, often between 25% and 75%. This reduces the deposit amount and the size of the mortgage required, making it easier to apply for a mortgage. The remainder is purchased by the government. Depending on the scheme you apply for, you either pay rent on the government's proportion of the property, or their stake is considered a loan, which you gradually pay back, separately to your mortgage.

Wales, Scotland and Northern Ireland have their own Help to Buy Schemes.

There is also a closed Help to Buy scheme called Help to Buy ISA.

What is the difference between Help to Buy Shared Ownership, Help to Buy Equity Loan, and Help to Buy ISAs?

Help to Buy Equity Loan

With Help to Buy Equity Loans, the government loans the applicant enough funds to cover a proportion of the property value, which then goes towards your deposit. This scheme is capped at 20% of the value of the property, with the exception of London properties where you can borrow up to 40%. This means that the amount you need to borrow for a mortgage is much lower. These loans are only available on specific new-build properties.

The loan is interest free for five years, during which time you can focus on paying your mortgage only, save for minimal admin fees. After the initial five years, 1.75% interest will apply, which could change in line with inflation.

Help to Buy Shared Ownership

Shared Ownership is also known as “part buy, part rent”. You purchase a proportion of your home (between 25-75%) and the government purchases the remainder. You then pay rent to the government on the proportion of the property that they own. This rent amount is based on the proportion of the property that the government owns, and is below market value. The deposit required for a shared ownership mortgage is based on the proportion of the property that you are buying (not the full sale price of the property). This allows you to get your foot on the property ladder with a smaller deposit than with a standard mortgage application.

You may be able to gradually purchase a larger proportion of the property over time. Each month your mortgage payments would go up, but the rent you pay would go down. This is called “staircasing”, and through this system you could eventually own 100% of the property.

 

Help to Buy ISA

Help to Buy ISA is a scheme that has now ended. It allowed individuals to save towards a deposit, with the government contributing an additional 25% towards what they saved. This “bonus” can only be put towards buying a property. It is requested by your solicitor as part of the completion process, and never actually sits in your account. Although the scheme is closed to new applicants, for people who opened the ISA before the closing date, they can continue to pay into the account and benefit from the government bonus.

What are the limits of the Help to Buy Equity Loan scheme?

Up until the end of 2020, both first time buyers and existing homeowners can apply for the Help to Buy Equity Loan. However, from 2021 onwards, it is restricted to first time buyers only.

The purchase price of the property is limited to £600,000, and the buyer must invest at least a 5% deposit. From 2021, further regional price caps will apply. 

If you are an existing homeowner applying for the scheme, you must have sold your current home before buying a Help to Buy home. 

You cannot buy with an interest-only mortgage.

What happens when I want to sell my home if it was bought with an equity loan?

The equity loan must be repaid within 25 years. If you want to sell before this time is up, you must repay the loan immediately. You will pay back the same percentage of the selling price as the percentage equity that the government initially loaned you. So if you borrowed 20% of the property value when you bought, you’ll have to pay back 20% of the sale price when you sell.

Help to Buy Scotland

The Scottish Help to Buy scheme is similar to the scheme in England, with some differences. The government will lend up to 15% of the value of the property, for properties up to a value of £200,000. If you wish to buy back the proportion owned by the government, you’ll need to buy back in 5% increments.

There are a number of other schemes available within Scotland, including the First Home Fund, the New Supply Shared Equity scheme, and the Open Market Shared Equity scheme.

Help to Buy Wales

In Wales, the scheme will lend up to 20% of the value of the property, with applicable property values capped at £300,000. Buyers must put forward a 5% deposit.

Help to Buy Northern Ireland

In Northern Ireland, an ISA scheme gives first time buyers a boost to their savings. This is applicable for first time buyers only, and offers up to £1,000 a year towards savings. The fund can only be used on properties under £450,000 in value. Shared Ownership and Rent to Buy schemes are also available.