What is the Help to Buy scheme?
The government launched the Help to Buy scheme in order to assist first-time buyers who want to get on the property ladder but may not be able to do so with a standard mortgage.
With mortgages currently at such low rates, they may be able to afford the mortgage payments however house prices at a high level have left many struggling to raise the deposits needed.
Here is a quick overview of the scheme and how it can help first-time buyers:
The scheme launched back in 2012 with the government offering a 20% equity loan to homebuyers as long as they were purchasing a newly built property and could offer a deposit of 5%. There have been some additions since then with the second phase of the scheme being introduced in October 2013.
There are three parts to the Help to Buy scheme:
Help to Buy: NewBuy
NewBuy lets you buy a newly built home with a deposit of only 5% of the purchase price.
The property must be a completely new build or being sold for the first time in its current format (e.g. it may be a house that has been transformed into brand new apartments) and be priced at £500,000 or less.
You don’t need to be a first-time buyer to be eligible for NewBuy, however it must be your main home – you can’t use the scheme to purchase a second home, or as a buy-to-let property.
The property must have been built by a builder affiliated to the scheme.
Help to Buy: Equity Loan
The Equity Loan scheme is available for both first-time buyers and home moves on new build properties up to the value of £600,000 and must be your main home.
You’ll need to offer at least 5% of the property price as a deposit – the government will then loan you up to 20% of the property’s value. You’ll then need to get a mortgage to cover the remaining 75%.
The government loan remains interest free for the first five years that you own your home – however in the sixth year you’ll be charged 1.75% of the loan's value in fees. Following this, the fee will increase every year and is worked out by using the Retail Prices Index plus 1%.
Help to Buy: Mortgage Guarantee
The Mortgage Guarantee scheme enables buyers to put down a deposit of just 5% of the property value and, subject to the usual affordability checks, they can apply for a 95% mortgage from a lender (providing they are part of the scheme). The scheme is open to both first-time buyers and home movers purchasing a property (new or old) up to the value of £600,000.
Lenders who have signed up to Help to Buy scheme pay a fee to the government, which in turn provides a seven-year guarantee covering 15% of the loan value. If the borrower defaults on their mortgage payments, the lender is able to claim this back from the government.
Help to Buy schemes can’t be used on a Shared Ownership Property or any other publicly funded mortgage scheme, or with an interest-only mortgage
Lenders that are currently part of the scheme include:
The rates will depend on the lender – although you should expect them to be slightly higher, they’re not all that dissimilar to those being offered outside the scheme. But of course the main benefit of the Help to Buy programme remains the fact that you don’t have to struggle to find a huge deposit.
For buyers that are able to raise a larger deposit to begin with, then it is likely that you will find better rates by shopping around.
In March 2015, George Osborne announced the introduction of a new Help to Buy ISA – a generous savings scheme to help first-time buyers save for a deposit on a property. The scheme is due to launch in December 2015.
You can find out more about the Help to Buy ISA below:
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