Help To Buy Schemes

What are they and are you eligible?

Whether you’re looking to buy your first property or hoping to climb further up the property ladder as an existing homeowner, saving a big enough deposit can be hard. But don’t despair — there are government schemes to help you and we’ll explain them to you here.

Help to Buy: Equity Loan

The Help to Buy: Equity Loan scheme is available for first-time buyers and existing homeowners looking to purchase new-build properties. The current scheme is available until 2021 at which point a new one will replace it.

You need to have a 5% deposit to put down for this scheme and the government then provides you with an equity loan of 20% of the purchase price. This means you only need to take out a mortgage for 75%, giving you reduced monthly mortgage payments and making it much easier to find a good mortgage deal. Not only that, but the 20% equity loan is interest-free for the first 5 years, giving you a bit of breathing space with your finances during that period.

What charges are there after the first 5 years?

At the end of the interest-free period, interest becomes payable on the loan amount at a rate of 1.75%. This increases each year according to the Retail Price Index (RPI) in line with the rate of inflation, plus an additional 1%.

You must pay the loan back within 25 years although you can repay it at any point beforehand. If you sell your property before the end of the repayment term, you must pay the loan back at that point. Bear in mind that the equity loan is a set percentage of the property’s value so if the value of your home increases, so does the amount you need to repay when you sell it. On the other hand, if your home’s value decreases, you repay a lower amount.

Criteria for the Help to Buy: Equity Loan scheme

To qualify for this scheme, as well as needing a 5% deposit, the property you want to buy must be a new build with a value up to £600,000. You must use this property as your home rather than as an investment to rent out. This scheme is also restricted to first-time buyers or existing homeowners looking to move up the property ladder — you cannot own other properties other than the one you are looking to sell and move from. There is no salary limit for this scheme, so you still qualify for this equity loan even if you earn a high salary.

London Help to Buy

To reflect the high property prices in London, the government offers a higher equity loan for this region. Instead of receiving help with 20% of the purchase price, the government offers double this amount with an equity loan of 40%. As you have a 5% deposit to go with this, you only need to find a mortgage deal for 55% of the purchase value.

What happens after 2021?

When this scheme expires in 2021, a new one will take its place. The new scheme is for first-time buyers only and is set to run from April 2021 until March 2023.

As with the current scheme, a deposit of 5% will be required and an equity loan of 20% of the property value will be available from the government with an interest-free period of 5 years. Regional price caps, however, will be set, being significantly lower than the current £600,000 property value limit.

Help to Buy ISA

As a first-time buyer, you can increase your deposit amount using a Help to Buy ISA. This lets you save up to £200 per month and the government boosts your savings by 25% (up to £50 per month). You must have a minimum of £1,600 in your account before you can receive your first government bonus. The maximum bonus you can receive is £3,000 and you have to save £12,000 yourself to be able to claim this amount. When you are ready to purchase your first home, your solicitor needs to apply for your government bonus, which is then paid upon completion of your property purchase.

The downside to this is that no new accounts can be opened so you can only benefit from this scheme if you opened a Help to Buy ISA before 30^th November 2019. If you did, you can continue to save in it until 30^th November 2029 and you have until 1^st December 2030 to claim your bonus.

Combine your ISA with another Help to Buy scheme

The upside is that although you can only have one account per person, you’re not restricted to one Help to Buy ISA per property so you can combine your savings and bonuses when making a joint purchase. You also earn interest on your own savings, not the government bonus, and can combine this ISA with a Help to Buy: Equity Loan.

Don’t worry if you haven’t already got a Help to Buy ISA — you can benefit from a Lifetime ISA instead, which also provides government bonuses on your savings.

Help to Buy: Shared Ownership

Another option to consider taking advantage of is the Help to Buy: Shared Ownership scheme. For this, you use a deposit and mortgage to purchase a percentage of the property, ranging between 25% and 75% of the property value. You then pay rent on the share that’s left. You can buy more of the property later to increase your share until you eventually own all of it, which is known as staircasing.

This scheme lets you have shared ownership of either a new build or an existing shared ownership property. Existing shared ownership properties are found via housing association resale programmes.

How to qualify for this scheme

To benefit from this scheme, you must be a first-time buyer, have an existing shared ownership and want to move or used to be a homeowner and are now not able to afford buying a property.

Outside London, your household must earn £80,000 or less per annum. Within London, your household must earn £90,000 or less per annum.