Help to Buy explained

Trying to get a foot on the property ladder can be a struggle for the best of us. Often with university debt stacked behind you and a low paid, entry level first job, saving enough money to put down a deposit is a common stumbling block - especially for first time buyers.

To help combat this, the government has introduced a number of different Help to Buy schemes - including Help to Buy Equity Loan scheme, the Help to Buy ISA, and the ability to purchase a Shared Ownership property using the Help to Buy scheme. All are aimed at helping those struggling to get to where they want to be on the property ladder.

The government has introduced a number of different Help to Buy schemes, all aimed at those struggling to get to where they want to be on the property ladder.

What is the Help to Buy Equity Loan scheme?

This scheme is applicable for new build homes only, so if new builds appeal to you, then it might be worth reading up on the terms and conditions of the government Help to Buy Equity Loan.

How does a Help to Buy Equity Loan work?

• First time buyers and home movers are both eligible for an Equity Loan
• The government will lend you up to 20% of the cost of your new build home
• You find the minimum 5% cash deposit upfront
• You therefore have an overall 25% deposit against the purchase price of the house/flat
• You won’t be charged loan fees on the 20% loan for the first five years

In the 6th year, you will currently be charged a fee of 1.75% of the loan’s value. After this, the fee will increase every year in line with inflation. The annual increase in the fees is worked out by using the Retail Prices Index (RPI) plus 1%. For instance, you could see the following:

Years 1-5: no fees

Year 6: 1.75% of the loan

Year 7 onwards: 1.75% + RPI + 1%

These fees do not go towards paying off the government loan

However the larger the deposit you put down, the more mortgage products you’ll have available and generally speaking, the bigger the deposit, the better the mortgage deal.

Help to Buy ISA

If you don’t need to buy right now, but you’d like to start saving with a view to buy at some point in the near future, then this could be a good scheme for you. Essentially a Help to Buy ISA acts as a savings account; with a few added benefits:

• The government will boost your savings by 25%
• If you save £200 a month, the government will top it up by £50 each month
• The maximum bonus you can earn is £3,000 (assuming you save £12,000) 

Visit the Help to Buy website to use their bonus calculator. You can enter the amount of your total savings to work out how much of a top-up the government will give you.

Help to Buy: Shared Ownership

Shared Ownership lets you buy a portion of your own house which you can usually increase over time, until you gradually own your own house, outright. This is a good way to step into the housing market, as the deposit amount is based on the share you buy, meaning it will be much less than a typical deposit. Sometimes no deposit is even required!

Many people decide, for example, that for example owning 50% of a home, is still much better than owning 0% of a home if they continue to rent.

How does Help to Buy: Shared Ownership work?

There are a couple of conditions to determine if you're eligible for this scheme. You could buy a home through the Help to Buy: Shared Ownership in England, if:

• Your household earns £80,000 a year or less outside London 
• Your household earns £90,000 a year or less in London
• You're a first time buyer, you used to own a home but can't afford to buy one now
• You're an existing shared owner looking to move 

Once you've applied, you'll then need to:

• Find the minimum 5% deposit of the purchase share to pay upfront (although some lenders will now accept a 0% deposit)
• Purchase a percentage share of your house (between 25% and 75% of the market value)
• Pay monthly rent on the remaining portion

You can then increase your ownership share as and when you can afford to do so, until your own your property outright. 

When does Help to Buy end?

Originally intended to only last until 2016, the UK government extended the Help to Buy scheme until 2020, when it will be closed down. 

Interest in taking advantage of the Help to Buy scheme to purchase a property? Please get in touch with us to speak to an adviser in more detail about any Help to Buy schemes.