Help to Buy is a government scheme designed to give first-time buyers a helping hand, or to assist home movers with limited equity. Under Help to Buy, you only need to provide 5% of a home’s value as a deposit.

The Help to Buy mortgage scheme means first-time-buyers and homemovers that also qualify for the scheme, only need to put down 5% of a home’s value for a deposit. The government will then step in to effectively boost this amount with an equity loan.

The government-backed Help to Buy schemes are designed to help first-time buyers and those looking to move up the property ladder.

There are two different schemes under Help to Buy – an equity loan and a shared ownership scheme.

The government backed Help to Buy ISA can also be a good way to save for a home – the government has promised to boost your savings by 25% when you take out a mortgage and you can save up to £200 a month towards buying a home.

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Help to Buy: Equity Loan

With the Help to Buy Equity Loan scheme, a buyer puts down a deposit of at least 5% on a new-build property and the government lends up to a further 20% – or 40% if you’re in London – creating a total deposit of 25%, or 45% for Londoners.

This part of the scheme doesn’t apply to properties that aren’t newly-built, and there’s a maximum purchase price of £600,000.

The government’s part of the loan is interest-free for the first five years.

From year six, you’ll be charged interest at 1.75%. The rate increases every year after that in line with the Retail Prices Index – RPI – inflation rate, plus 1%.

When you come to sell the property, as it’s an equity loan – rather than a flat amount – you will have to pay the government back 20% of your home’s value at that point. This is the case whether the value has risen or fallen.

You can repay the equity loan at any time before this though, without penalty, so long as it’s in chunks of at least 10% of your home’s current market value.

Help to Buy: Shared Ownership

Shared ownership is a Help to Buy backed scheme that helps people who can’t afford a mortgage on 100% of a property, or cannot obtain a mortgage for the full amount because of their earnings of commitments. Shared ownership allows you to buy a share of your home – between 25% and 75% of the home’s value – and pay rent on the remaining share.

You may have the option later on to buy a bigger share of the home, which is called staircasing. This scheme is available in England only.

London Help to Buy explained

The government’s London Help to Buy scheme launched on 1 February, 2016.

Prospective buyers in London will still need to put down a 5% deposit towards a new-build home – just like the Equity Loan scheme across the rest of the country – but if you’re buying in London, you’ll be able to borrow up to 40% of the property value instead of the 20% that’s available in the rest of the country.

That means once you factor in the 5% deposit you’ve saved, you’ll have 45% of the value of the property to put down. You’ll need to take a mortgage out for the remaining 55% of the cost.

Your mortgage must be for at least 25% of the property’s value.

The scheme only applies to new-build properties worth up to £600,000 and the property you are buying must also be your only home. You cannot use Help to Buy to purchase a buy-to-let property.

You’ll only qualify for the 40% loan if you’re buying in any of the London boroughs or the City of London.

Who is eligible?

To qualify for a Help to Buy: ISA you must:

  • be 16 or over
  • have a valid National Insurance number
  • be a UK resident
  • be a first time buyer, and not own a property anywhere in the world
  • not have another active cash ISA in the same tax year: If you have opened a cash ISA this tax year, you can open a Help to Buy: ISA but will have to take additional steps.

To qualify for the government bonus, the property you are buying must:

  • be in the UK
  • have a purchase price of up to £250,000 (or up to £450,000 in London)
  • be the only home you will own
  • be where you intend on living
  • be purchased with a mortgage

You can use the Help to Buy: ISA in conjunction with other government schemes, including the Help to Buy: Equity Loan scheme and Shared Ownership.

How much money do you need for help to buy?

Help to Buy: Equity loans

You need at least 5% of the sale price of your new-build flat or house as a deposit. The government lends you up to 20%, or 40% if you live in London, of the sale price. You borrow the rest (up to 75%, or 55% if you live in London) from a mortgage lender, on a repayment basis.

How long does it take for help to buy to be approved?

It will take up to four days for your local Help to Buy agency to issue an Authority to Proceed. The Authority to Proceed is valid for three months and the majority of house builders aim to exchange contracts within one month of you making a reservation.

Can you use the Help to Buy scheme if you have bad credit?

Although the Help to Buy: Equity Loan scheme excludes ‘credit impaired customers’, borrowers with less severe bad credit may be able to obtain a mortgage under the Help To Buy scheme.

Is Help to Buy scheme ending?

The Help to Buy end date is in 2023 but starting in 2021 it will be available only to first-time buyers and for homes with a market value up to the price cap for new regional properties. After March 2023, the government will not be introducing another loan scheme like Help to Buy.

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