What is the government’s help to buy scheme?
How can it help first time buyers?
Our Homebuyers guide will walk you through the HTB process and answer all of your questions.
‘Help To Buy’ (HTB) is a government-backed scheme that was created to give first-time buyers a more affordable way to get onto the property ladder.
It allows you to put down a 5% deposit, with an additional 20% loan provided by the government.
Yep – the government!
This means that you’ll only need a mortgage for 75% of the purchase price.
The 20% loan is interest-free for 5 years and is repayable after 25 years – or earlier if you sell your home.
Pretty sweet, huh?
Who Is Eligible for the Government Help To Buy Scheme?
Well, it used to be that both first-time buyers and existing homeowners could take advantage of the government Help To Buy Scheme.
But, some changes were made this year, making it only available to first-time buyers.
Great news for them!
However, there are regional price caps on the price of the properties you are able to purchase.
At the moment, in England, the HTB scheme is available on new-build properties worth up to £600,000.
What Restrictions Are There On The Government Help To Buy Scheme?
Well, now that the scheme is only open to first-time buyers, not many.
(It used to be that if you already own a home you have to sell it before you can use Help to Buy Scheme, and you couldn’t use the scheme to part-exchange your existing home)
Of course that’s all academic now.
What might be useful for you to know though is:
- Your mortgage must be a repayment mortgage, not interest-only
- The property you buy must be your only home and you must live in it, as opposed to renting it out
- You’ll need permission to extend or alter any house you purchase with Help to Buy Scheme
- The scheme is available on new-build properties only
How Much Can I Borrow in the Help to Buy Scheme?
The great thing about Help to Buy is that you only need a 5% deposit, and then you can get a government-backed equity loan to top it up.
The amount you can borrow varies regionally, but in England it’s 20% (40% in London where everything’s hideously expensive).
Is The Government Help To Buy Scheme Loan Interest Free?
For the first five years, yes.
After that you’ll pay interest of 1.75% in the 6th year, and then 1.75% as well as any increase in the Retail Price Index (RPI) plus an extra 1% every year after that.
Once you sell your home, or you’ve paid the mortgage off, you’ll have to pay back the equity loan as well as a share of any increase in the value.
The amount you borrow on the government Help To Buy scheme is a percentage of the value of your new home.
And the amount you pay back is the same percentage of the value of your home when you sell or decide to pay back the Help to Buy loan.
This means, if the value of your home rises, so does the amount you owe on your equity loan.
It works both ways, so if the value of your home falls, the amount you owe on your loan falls too
Example:
Repaying a 20% equity loan where the home has increased in value.
- buy your home for £200,000
- sell your home for £210,000
- Repay your 20% equity loan, £42,000
- Pay off your 75% mortgage, £157,500
- Get your deposit back and a profit, £10,500.
Could I Repay My Help To Buy Loan Early?
You can pay part or all of the loan back at any time, but the minimum you can pay back at any one time is 10% of the market value.
This means the amount you pay will depend on what your house is worth at the time
If you want advice on anything mortgage-related – first-time buyer or not, get in touch with one of our advisors. We’d be happy to help!
Your home may be repossessed if you do not keep up repayments on your mortgage.
