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Help to Buy

Find out if you meet the criteria for a Help to Buy mortgage and learn more about the UK government’s homeownership scheme.

Housing market price rises and stagnating wages has made the first steps onto the property ladder out of reach for a large proportion of the UK.

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The government has recently introduced the Help to Buy scheme to improve people’s chances of owning property in England, although there are similar schemes available in Wales and Scotland.

Coupled with low mortgage interest rates, the scheme is likely to be taken up by many first-time buyers.

Since April 2013, first-time buyers of new build properties will only need a deposit of 5% in order to get a mortgage for up to 75% of the property’s value.

From October 2013, the scheme expanded to include older properties and became available to home movers, not just first time buyers.

Read our guide to learn more about the first phase of the Help to Buy scheme, and the second phase, often referred to as the Help to Buy mortgage guarantee or compare the current mortgage market with our online mortgage comparison tool.

How Help to Buy works (phase one)

The scheme, which also referred to as Help to Buy equity loans, aims to boost the construction industry while giving people, who would have otherwise been priced out of the market, an equity loan to assist with buying a home.

Using the Help to Buy scheme, first time buyers can get a loan worth up to 20% of the property’s value.

This leaves you only needing to pay a deposit of 5%, if you can get a mortgage covering 75% of the property’s value.

For example, a £10,000 deposit, could help you purchase a home worth up to £200,000.

This breaks down into 5% for the deposit (£10,000), 20% for the government loan (£40,000), and 75% for the mortgage (£150,000).

Property value: £200,000 Amount Percentage
Cash deposit £10,000 5%
Government loan £40,000 20%
Mortgage £150,000 75%

The benefit of using a government loan is that there are no loan fees for the first 5 years of owning your home.

In the 6th year, you’ll be charged a fee of up to 1.75% of the loan’s value. After this, the fee will increase every year in line with the Retail Price Index, plus 1%.

Learn about Help to Buy and mortgages for first time buyers

Getting your first home can be easier with Help to Buy but it’s worth checking out the 95% LTV mortgages available

Before the fees start, a Help to Buy agent will contact you to set up monthly payments and you’ll receive a statement each year.

You will own your home, which means you can sell it at any time, but you’ll have to pay back the equity loan when you sell your home or at the end of your mortgage period – depending on which comes first.

If you want to pay off the loan in full, you can speak to your Help to Buy agent to see if this is possible.

Am I eligible for a Help to Buy mortgage?

It’s important to note that all applications are subject to credit checks and stress tests, and each mortgage lender will have their own terms relating to who is eligible.

  • You will need a minimum 5% deposit of the property’s value
  • The property value cannot exceed £600,000
  • You may need to secure up to 80% mortgage from the lender (but 75% for first-time buyers and new build properties)
  • A clean credit history and proof you can afford repayments is still critical – those with county court judgments from three years prior to the application will be barred
  • You must be a first time buyer
  • Help to Buy is only valid in England
  • Overseas buyers with no history of UK home ownership will not be allowed to take up the scheme
  • You cannot take up Help to Buy in conjunction with other government home ownership schemes, such as NewBuy

How does Help to Buy work?

The second phase of the Help to Buy scheme is also referred to as the Help to Buy mortgage guarantee. This is because it’s the government guaranteeing the money banks lend, rather than providing the customer with an equity loan.

Instead of applying for a standard 95% loan, the Help to Buy 2 scheme, in theory, makes it easier to secure the 95% LTV because banks, in theory, take less of a risk

Now, this is all in theory, because, as expected, each mortgage provider will have their own set of eligibility criteria and are not obliged by the government to lend to everyone.

As the government backs up to 15% of the mortgage money, customers will be able to put a minimum of 5% down.

The scheme thus works similarly to the first phase of Help to Buy in terms of the final outcome, but the mortgage guarantee scheme is not just for first-time buyers.

It’s also available to home movers, but this term can be quite confusing. What this means is that if you have already owned a home, you are not necessarily excluded from the scheme.

If you intend to keep your other property, then you won’t be able to use the mortgage guarantee scheme, but if you sold it and had no more properties in your name, then you are all clear to apply for a Help to Buy 2 mortgage.

Am I eligible for Help to Buy 2?

  • Just like the first phase, you will need a minimum 5% deposit
  • The property value cannot exceed £600,000
  • You can secure up to a 95% mortgage but each bank will have its own eligibility criteria which you’ll need to meet to get this
  • A clean credit history and proof you can afford repayments is still critical – those with county court judgments from three years prior to the application will be barred
  • You must be a first time buyer or home mover – this means you cannot buy to let the new property or rent your existing home
  • Help to Buy 2 is only valid in England, but Wales and Scotland have their own variation of first-time buyer and home-mover schemes
  • Overseas buyers with no history of UK home ownership will not be allowed to take up the scheme
  • You cannot take up Help to Buy in conjunction with other government home ownership schemes, such as NewBuy

Alternatives to Help to Buy

Shared ownership schemes are provided through housing associations, and aim to give people a better chance of home ownership by allowing them to purchase a share of the home.

While Help to Buy is not valid in Scotland, they do also have a shared ownership scheme.

Like in England, the scheme allows people to purchase a 25%, 50% or 75% stake in a property owned by the housing association. They then pay rent on the remainder and have the option of purchasing 100% of the property.

Meanwhile, in Wales, the Homebuy scheme offers an equity loan of around 30% of the property value, but is mainly intended for people who would otherwise require social housing.

There’s also the NewBuy scheme, which, like Help to Buy, only requires a 5% deposit. However, NewBuy is only valid on newly built homes by builders taking part in the scheme.

95% LTV mortgages vs Help to Buy mortgage guarantee

Many banks and building societies have been offering 95% LTV mortgages long before the introduction of the mortgage guarantee scheme, which in effect offers a similar benefit as the second phase of the Help to Buy scheme.

This benefit in a nutshell: put down a 5% deposit and the bank will loan you the rest. However, the advantage of Help to Buy is that the banks will be, in theory, more willing to lend you that money as 15% of the loan will be guaranteed by the government.

This may, again in theory, mean you can get preferential rates than if you went straight for a 95% mortgage.

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