Help to Buy: The Lowdown...
The Help to Buy equity loan scheme has helped more than 210,000 borrowers to climb on to the property ladder since its launch in 2013. It offers many attractive benefits to first-time buyers - and home movers - but how does it actually work?
Here are the 13 things you need to know about Help to Buy that will help you decide if it’s worth exploring to get you the home you really want:
- The equity loan scheme lends up to 20% of the price of a new-build interest-free for five years. In February 2016, the maximum loan size was doubled to 40% in London, to take account of the capital's higher accommodation prices.
- Purchase prices are capped. Applicants can choose from selected new-builds costing up to £600,000, so the maximum loan size is £240,000 in Greater London and £120,000 outside it.
- You still have to raise a 5% deposit and take out a mortgage for the rest.
- When Help to Buy borrowers reach the end of the interest-free five-year period they have to start paying interest on their loan. You'll pay 1.75% interest on the outstanding amount, rising annually by the increase in the Retail Price Index plus 1%.
- The actual loan itself has to be paid back either when the property is sold, or after 25 years. You repay the same percentage you borrowed at the outset, so if your home has increased in value the sum will be more than the original loan, although if it's fallen into negative equity, it will be less. You can repay the equity loan earlier, but each repayment must be at least 10% of the property's value at the time, and there will be a valuation fee.
- Help to Buy is open to existing as well as new home owners, yet first-time buyers account for more than four-fifths of the total.
- Using the Help to Buy scheme means that you should get a more competitive mortgage deal, as borrowing 55% or 75% of the value of the property means you gain access to lower rates of interest.
- You will need a specialist Help to Buy mortgage rather than a mainstream mortgage. A mortgage broker can scour the market to find you the right mortgage at the lowest rate.
- You will also need to apply for a Help to Buy equity loan, which runs separately from your main mortgage. This will be organised through your local Help to Buy agent.
- Applicants are not eligible for Help to Buy if they own anything else, even if you don't live there - for example a Buy-to-Let or inherited property. You won't be eligible if you're applying with a partner who already owns a home, unless that property is being sold to part-fund the new purchase.
- As a Help to Buy homeowner, it’s possible to buy out some of the government stake. Known as ‘staircasing’, you can purchase chunks of 10% of the property’s value. When staircasing, you’ll need to pay for a valuation plus an administration fee of £200.
- First-time buyers can save in a Help to Buy ISA to boost their deposit. A maximum of £200 a month can be saved, plus an extra £1,000 in the first month. If you pay in £12,000 over 55 months you qualify for the maximum £3,000 government bonus. It will be paid only if the savings are put towards a deposit on a property. The money is paid directly to the solicitor dealing with your house purchase at the point of completion - you don’t get the cash in hand. It’s only available as a cash ISA.*
- Help to Buy was due to finish but has instead been extended until 2023 with major changes that come into play in April 2021. From then it will be restricted to first-time buyers only, so anyone owning or who has previously owned a home will no longer be eligible. Regional price caps are being introduced which means maximum purchase prices will drop to £437,600 in the South East, and to £407,400 in the East of England. The maximum price in London will remain at £600,000.
* Please note that the Help to Buy ISA closed to new accounts on the 30th November 2019 and is no longer available to open, but if you already have an existing account that you opened before this date, you can still continue to deposit money into it until November 2029.