What is a Help to Buy Mortgage?

The Help to Buy Scheme was introduced in the UK back in April 2013 to help First Time Buyers to get on the property ladder. With increasing property prices, an expensive rental market, stagnating wages and cost of living continuing to soar, it was becoming harder and harder to purchase property.

The Help to Buy scheme works by providing equity loans on new build properties up to the value of 20% of the purchase price of properties outside London and 40% of the purchase price of properties in London. Originally, the scheme was only meant to run for 3 years, but it set to run for the foreseeable future.

With the Help to Buy scheme providing an equity loan of 20% or 40%, you only need to put down a deposit of 5% from your own sources. The rest will be made up by a Help to Buy Mortgage.

www.helptobuy.gov.uk provide this following example:

Upon sale of the property, you will have to repay the equity loan. In this example, this means that if in 5 years time the property sells for £220,000, the loan will be 20% of £220,000 = £44,000.

After 5 years, interest is payable on the equity loan. If you haven’t sold the property or repaid the loan, you will start to make monthly payments. This is calculated as 1.75% per annum on the outstanding amount of the equity loan. From the fifth anniversary of the loan this fee will increase each year by the increase (if any) in RPI plus 1%.

If you are able to repay the loan within the 5 years, you won’t have any interest to pay.

You will be contacted before the end of they 5 years by the Help to Buy team to make sure you have arrangements in place to start making the interest payments.

What restrictions are there with the Help to Buy scheme?

The Help to Buy scheme is set up to help people who need it to get on to the property ladder. That being the case, there are some restrictions to the Help to Buy scheme.

  • Help to Buy equity loans are only available on new build properties up to £600,000.
  • You can’t use the above schemes to buy a second home or a property to rent out.
  • If you use Help to Buy, you can only take out a repayment mortgage.
  • The equity loan must be repaid after 25 years, or earlier if you sell your home.

How do I start the process of getting a Help to Buy equity loan?

With applying for any loan, there are always going to be hoops to jump through. The first thing we would suggest is speaking to Pete or Adam at Lloyd Wells Mortgages to run through how much you can borrow, what that will cost and what fees will be payable. Once you know how much you are able to borrow, you can start the process of looking at properties.

You also need to speak with your local Help to Buy agent.

They will run through the Help to Buy affordability calculator to see how much you of an equity loan you are able to apply for.

This is the current calculator for the Help to Buy equity loan calculator.

If you are looking to purchase within London, you will need to use this calculator.

Case Study

All of this information can be a bit overwhelming, so to make it more digestible we wanted to give you an example of a client we were able to recently help.

We were recently contacted by Lucy, who was looking to purchase her first home. She had been renting for several years but had built up enough savings to put down a deposit on a new development in Bedminster, Bristol. The development was a conversion of an old church and was being turned in to 10 gorgeous flats.

When we first spoke to Lucy, we ran through how much she would be able to borrow, we also went through the Help to Buy calculator and found that although Halifax were able to lend her a certain amount, the Help to Buy calculator wasn’t quite as generous. This meant that the best option for her ended up putting down a slightly larger than 5% deposit, borrowing the 20% equity loan from the Help to Buy scheme and making up the rest with a mortgage with Nationwide, who had the best rates for her at that time.

Despite buying her first home during a global pandemic, the process was nice and straight forward and we were able to produce a mortgage offer, subject to valuation for her in 3 working days.

Documents wise, Nationwide needed her latest 3 months worth of payslips, 3 months worth of bank statements and proof of her deposit.

Lucy is an absolute diamond and we wish her all of the best in her new home, once the construction is completed later this year.

Next Steps

If you are thinking of buying using the Help to Buy scheme and need some advice, then do give us a call on 01174 520 330. Our initial conversations usually last around 15 minutes.

Alternatively, you can email enquiry@lloydwellsmortgages.co.uk and let us know how we can help you.

We will discuss:

  • How much you can borrow
  • What that will cost
  • What fees can you expect
  • How Lloyd Wells Mortgages work
  • What insurances you will need
  • What documentation you will need to provide
  • Next steps

Your home may be repossessed if you do not keep up repayments on your mortgage.