What is the government’s help to buy scheme, and how can it help first time buyers? Our Homebuyers guide will walk you through the HTB process.
‘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. 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.
Who Is Eligible for the Help To Buy Scheme?
Well, currently both first-time buyers and existing homeowners are eligible, but there are some changes being made to the Help to Buy Scheme scheme in 2021, making it only available to first-time buyers.
if you are already a homeowner and want to take advantage of Help to Buy Scheme you will need to buy a house built by 31st December 2020 and have completed on your sale by 31st March 2021.
For first-time buyers the scheme will continue, although there will be regional price caps on the price of the properties you are able to purchase. At the moment, in England, the scheme is available on new-build properties worth up to £600,000.
What Restrictions Are There?
There are some, but for first-time buyers some of these won’t apply. For example, if you already own a home you have to sell it before you can use Help to Buy Scheme, and you can’t use the scheme to part-exchange your existing home.
As I said; not a problem if you are a first time buyer. 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
And 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).
And That Loan Is Interest-Free, Right?
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 you 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 Help To Buy 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.
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 The 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. So the amount you pay will depend on what your house is worth at the time.
Be sure to check out my other Mortgage related articles in Articles by Andy!
Your home may be repossessed if you do not keep up repayments on your mortgage.