The Help to Buy Scheme Explained

If you are a first-time buyer looking to make your first step on to the property ladder and are struggling to save enough money to successfully secure an affordable mortgage on your ideal first home, then you are not alone. Thousands of people are currently in the same situation, which has prompted the Government to launch a variety of schemes to ensure that property ownership is not beyond the means of those who are ready to commit to one of the largest financial investments they will make in their lifetimes.

Help to Buy cannot be used to purchase a property over £600,000 (£300,000 in Wales or £200,000 in Scotland), a second home, or a property that you intend to rent out at any time.

During the application process, you will be required to sign a legal document which confirms that you will not let out your property, either now or in the future. It is also important to note that if you intend to obtain anything other than a repayment mortgage, you will not be eligible for the Help to Buy scheme.

For the first five years, you will not pay any fees or interest at all on the equity loan you have received from the Government. In the sixth year, your interest rate will be 1.75% and this will rise each year in line with inflation set out by the Retail Prices Index (RPI) plus an additional 1%.

• Years 1-5: No fees or interest
• Year 6: 1.75% of your total equity loan
• Year 7 onwards: 1.75% plus RPI plus an additional 1%

It is important to note that these fees are additional and therefore will not be put towards the repayment of your government equity loan.

When your mortgage is paid off or when you sell your home in the future, you will be required to repay the total equity loan you received plus a share of any value increase. Let’s run through a quick example of what this could look like here.

Say you purchased your property for £200,000 and you sell it for £250,000:

• Increase in value - 25%
• Equity loan repayment - £50,000 (£40,000 plus 25% increase in value)
• Repayment Mortgage - £150,000 (less capital repayments)
• Your Share - at least £50,000 

The exact amount you will receive as your share will depend on how much you have paid towards your mortgage, but this can then be used as a deposit to secure your next home. You can repay part or all of your equity loan at any time, but the minimum percentage you can repay is 10% of the total market value of your property.

Help to Buy schemes are not necessarily the most appropriate option for every buyer, so speaking to a mortgage advisor to discuss your needs in greater detail will equip you with the knowledge you need to ensure that you are making the correct purchasing decisions. For example, if it looks as though you will be able to put in a 10% deposit and secure an affordable 90% mortgage, a Help to Buy equity loan might not be the best option for you. Your mortgage advisor will run through a variety of different mortgage scenarios with you, which will include factors such as interest costs and the potential financial impact of a rise in the price of your property on the amount of money you will be required to pay back in relation to your equity loan.

Importantly, however, Help to Buy schemes have helped thousands of people to get their foot on the property ladder in a landscape that has been increasingly difficult for buyers to navigate successfully.

If you have any questions about the Help to Buy scheme and how it could help you to obtain a new build mortgage on your ideal property, why not call The Mortgage Hut today on 02380 980304 or enquire online here to speak to a qualified expert who will be able to tailor their advice to your unique circumstances.