If you're finding it hard to get on the housing ladder, you may be able to get help from the first-time buyer government scheme called Help to Buy. This was introduced to improve people’s chances of owning property in England. If you want to buy in Wales, there’s a similar scheme available there too.
Help to Buy mortgages are specifically for people buying a home through Help to Buy so you’ll need one of these if you’re using the scheme.
The scheme has been taken up by many first-time buyers, who have been able to benefit from the relatively low interest rates of recent years.
Under the Help to Buy equity loan scheme, first-time buyers can buy a new build property with a deposit of just 5%. You get an equity loan from the government of up to 20% of the property’s value (up to 40% in London) and a repayment mortgage for the remaining portion of up to 75%. The minimum mortgage you can take out is 25%.
Once you’ve found a home you want to buy and have been approved for an equity loan under the scheme, you then apply for the mortgage you need with a lender. Help to Buy mortgages work in the same way as standard mortgages and can have an initial fixed or variable rate.
You can compare the current Help to Buy mortgage market with our online mortgage comparison tool.
The Help to Buy scheme is a way for first-time buyers who would otherwise not be able to afford to buy a home of their own to get on to the property ladder.
Under the current scheme, you get an equity loan from the government for a percentage of the property’s value to help you buy a new-build home. This means that if you sell it and haven’t paid off any part of the loan, you have to pay back the same percentage of the value, regardless of how it’s changed.
You don’t have to pay interest on the equity loan for the first five years. But in year six, you start paying interest at 1.75% based on the amount you originally borrowed. The interest rate then increases in April each year after that. You can pay some or all of the loan back at any time.
There are maximum property price limits that are dictated by the region in which you’re buying. You can’t buy a home worth more than the limit for your area. In the North East, for example, the upper limit is set at £186,100, while in London it’s £600,000. The caps are intended to reflect the difference in property prices across the UK.
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You can only apply for a Help to Buy mortgage if you meet the eligibility guidelines for the Help to Buy scheme. You will also have to satisfy the mortgage provider’s lending criteria and have a good credit rating. As part of deciding whether and how much to lend to you, the lender will look at how much you can afford to borrow.
Below you can see how the Help to Buy scheme works and its eligibility rules.
This scheme makes it possible to buy a new home with just a 5% deposit. It is designed to help people who are struggling to save a big enough deposit to qualify for an ordinary mortgage and lets you access cheaper mortgage deals.
If you were to buy a £200,000 property you could get an equity loan for 20% and get a mortgage of 75% to make up the rest. You can see how this would work in the table.
You’re eligible for the equity loan scheme in England if:
You’re a first-time buyer - you’ve never owned a home or land in the UK or abroad
You can afford the fees and interest payments you need to pay
You’re buying a new-build home from a Help to Buy registered homebuilder
There is also an equity loan scheme in Wales that works a little differently.
The Help to Buy scheme has the following benefits:
It helps you to buy a first home when you otherwise wouldn’t be able to
You can buy a home with a deposit of as little as 5% of the property’s value
As you only need a mortgage of 75% or less of the value, you’ll be able to access cheaper deals
You don’t have to pay interest on the equity loan for the first five years
Help to Buy also has a number of downsides:
You can only buy a new–build home, not an existing one
There’s a limit to how much the property can cost
You have to pay interest on the equity loan after five years, and the rate increases each year
You don’t know how much paying back some or all of the equity loan will cost as it depends on the value of the property at the time
There are a range of other schemes available around the UK to help you buy a home. One option is shared ownership, where you buy a share of a property from a housing association and pay rent on the rest. Here are some others you might like to consider.
The mortgage guarantee scheme makes it easier to take out a 95% mortgage, which means you’ll only need a 5% deposit to buy a home. You can take out a mortgage from participating lenders to buy a property for up to £600,000. It’s available to home movers as well as first-time buyers until 31 December 2022.
In Wales, the Homebuy scheme offers an equity loan of around 30% of the property’s value. You pay for the remaining 70% using a mortgage or savings. It’s intended for people who qualify for social housing and can’t afford to carry on living in their current home or are in a home that doesn’t meet their needs.
First Homes is a new scheme in England that lets you buy a new build home for 30% to 50% less than its market value. To qualify you must be a first-time buyer, able to get a mortgage for at least half the price of the property, and have a household income of £80,000 or less (£90,000 in London).
Help to Buy is a useful, government-backed way to improve your mortgage options and most lenders will be able to help you if you’re after a mortgage using Help to Buy. Although the scheme is coming to an end soon so you'll have to act quickly to take advantage of it. ”