Securing an affordable mortgage on your ideal first home
What is Help to Buy?
The primary scheme is known as Help to Buy scheme is available to all buyers who are looking to purchase a newly built property. If you were to go ahead and use this scheme, the Government will lend you money to help you to obtain a new build mortgage on a property under £600,000 in England, £300,000 in Wales and £200,000 in Scotland. You will be permitted to borrow 20% of the purchase price of your property on an interest-free basis for the first five years, provided that you also have at least a 5% deposit to put in. If you are looking to buy in London, the percentage of the purchase price you can borrow on these terms rises to 40%.
Who cannot apply for Help to Buy schemes?
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.
How Help to Buy Equity Loans Work
The rest of the money (up to 75% of the purchase price of your property) will need to be borrowed on a repayment only basis from a mortgage lender. You will, of course, need to prove to lenders that your circumstances mean that you will be able to comfortably afford your monthly mortgage payments.
If you would like to get an idea as to the amount that you could borrow from a mortgage lender and what your monthly repayments might be, check out our easy to use mortgage calculator.
The equity loan obtained from the Government will need to be repaid after 25 years or whenever you sell your home, whichever occurs sooner.
You will be required to repay the same percentage you borrowed as an equity loan from the proceeds of the sale of your property. So, if you received a 20% equity loan, when you sell your property in the future you must repay 20% of the proceeds of that sale.
If the cost of your new-build property is £200,000 the breakdown of your borrowings using Help to Buy might look something like this:
- Your deposit - 5% - £10,000
- Help to Buy Equity Loan - 20% - £40,000
- New build mortgage on a repayment basis - 75% - £150,000
Help to Buy Equity Loan Interest Rates
- 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%
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 Benefits of the Help to Buy Equity Loan Scheme
Increasing numbers of lenders are now offering Help to Buy mortgages and with so much choice available, your chances of securing a good deal are significantly improved.
What should you do next?
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.
Because we play by the book we want to tell you that...
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1.5%, but a typical fee is 0.3% of the amount borrowed.