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Home » Help to Buy Mortgages: All You Need to Know

Help to Buy Mortgages: All You Need to Know

Ciarán Power
August 26, 2022
Couple hugging in their new home

Table Of Contents

Please note the Help to Buy Scheme closed to new applicants in October 2022

Learn more on the UK Government website here.

What is a Help to Buy Mortgage?

It’s well documented that right now is harder than ever for first-time buyers to get a foot on the property ladder. Despite all of this doom and gloom surrounding increases in living costs, it is still possible to receive a helping hand when making your first move into home ownership.

The UK Government’s Help to Buy scheme allows first-time buyers to put down a deposit of just 5% on new-build homes worth up to £600,000. It’s worth noting that this scheme is only available to those purchasing their main home and can’t be used to buy a second or buy-to-let property.

With Help to Buy, you’re able to repay the loan at any time during the mortgage’s term or when you end up selling your property. Help to Buy lets you borrow up to 20% – or 40% if you’re based in London – of the house’s purchase price. You’ll then borrow the rest (up to 75%, or 55% if you live in London) from a mortgage lender.

Another benefit of this scheme is that whatever amount you receive comes free of interest for a whole five years. However, it’s important to remember that the value of your loan is linked to the value of the property that you’ve bought. If the value rises, so will the amount of loan you have to pay back. After the interest-free five years, you then have to pay a fee of 1.75% of the loan’s value, with this amount increasing every year in-line with inflation rates.

So how do I apply for Help to Buy?

Help to Buy requirements

To qualify for the Help to Buy scheme, you’ll need to make sure you have a deposit of at least 5% as well as a good credit history – so that you’re able to qualify for a mortgage. Help to Buy can’t be used to buy a property you are planning to rent out.

After showing that you’re able to afford the monthly mortgage repayments, you’ll also have to provide proof that you haven’t used any house purchasing plan in the past. You’ll need to sign a legal declaration to confirm that you are first-time buyers, as the scheme isn’t available to those looking at second homes – or those that have already previously owned a house in the UK or abroad.

If you’re applying to use the Help to Buy scheme and you are married or in a civil partnership, you will have to apply jointly with your partner. All parties involved in buying the home must meet the eligibility criteria.

The last step you’ll need to take in this journey is taking out a repayment mortgage for the full duration of your equity loan. Our team can provide guidance on any of these steps and help explain how this process works.

Can anyone use the Help to Buy scheme?

The Help to Buy scheme is only available to home buyers in England, but similar schemes do operate within Scotland and Wales. For more info about Help to Buy schemes in the rest of the UK, check out the specific link below:

How do Help to Buy repayments work?

So how does repaying the Help to Buy scheme work? The good news is that for the first 5 years, the equity loan is interest free with just a £1 monthly management fee to pay.

From year six onwards, you’ll have to pay the monthly management fee as well as a monthly interest fee of 1.75% of your full loan. Interest fees will continue to rise each year in line with inflation and you’ll continue to pay interest until the loan has been fully repaid.

Your equity loan must be fully repaid after 25 years or earlier if you end up selling your home during this period. You’ll also need to repay the same percentage of the proceeds of the sale as the initial equity loan. For example, if you received a loan for 20% of your home’s purchase price, you’ll need to repay 20% of the proceeds of the future sale. This also means that if the market value of your home rises, so does the amount you owe on your loan. If the value of your home falls, the amount you owe on your equity loan falls too.

For full details on the Help to Buy scheme, you can download the Government’s guide here.

What is a Help to Buy ISA?

Previously available alongside the Help to Buy loan scheme was the Help to Buy ISA. Although new applications for Help to Buy ISAs are no longer available, if you opened one before the closing date on 30 November 2019, you can continue saving into your account and earning a government bonus to put towards your first home until November 2029.

The government bonus can only be put towards a first home located in the UK, with a purchase value of less than £450,000 or less in London and £250,000 or less in all other parts of the UK.

You can find out more about the Help to Buy ISA on the Government website or by reaching out to one of our Green experts who will be happy to guide you through your different mortgage options. Call us today on 01244 955 399

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