Buying a house for the first time can be a daunting process. The process of acquiring a mortgage can be especially daunting for first-timers, and to make matters worse, mortgage providers can be wary of lending to those who are not already on the property ladder. Luckily, government schemes exist to simplify this process and make it easier for first-time buyers to take their first steps onto the property ladder. The Help to Buy scheme is one such offering.
If you are looking to buy a house for the first time, the Help to Buy scheme can help you get a property with only a 5% deposit. Use our guide to learn how the scheme works, who can qualify, and what options might be available to you.
Help to Buy: How Does It Work
There are two key parts of the Help to Buy scheme: the Equity Loan, and the Mortgage Guarantee. The mortgage guarantee is no longer offered.
Equity Loan Scheme
The Equity Loan scheme was launched on the first of April 2013. It will be available until 2020. The Equity Loan scheme is available to first-time buyers, but also to those moving home, but only purchases of new-build homes are eligible for the scheme.
Buyers are required to raise the first 5% of the property value for a deposit on the house. The government meets this with a loan of 20% of the property value, giving you a deposit of 25%. This 25% deposit will give you access to a variety of more attractive mortgage rates, though you will have to choose from lenders participating in the scheme.
The equity loan can be repaid at any time, and there is no penalty. You can decide to pay back 10% or 20% provided the loan is still worth at least 10% of the value of your home. For the first five years, the loan is interest-free, and for the sixth year, you will be charged 1.75%. That interest rate will climb at a rate of 1% of the total plus any increase due to inflation for every year after that, which is incredibly competitively priced.
New-build homes up to a value of £600,000 are eligible for the scheme in England, and there are no maximum income requirements. The property must be your sole residence, and you will need to prove you can meet repayments on the mortgage.
The Mortgage Guarantee
The mortgage guarantee scheme ended in December 2016, having been in effect since 2013. It applied to both new build homes and older homes, though the maximum house value of £600,000 in England remained the same.
When the scheme was in effect, buyers needed to raise 5% of the house price, which the government would meet with a mortgage guarantee to the lender for a further 15%. This would give the lenders greater confidence, and often mean better rates.
In England, both schemes apply only to homes costing up to £600,000. This value is the same in Northern Ireland, although they also offer a different equity loan scheme called co-ownership.
In Scotland, the maximum threshold depends on the property value and also when the application is submitted, and in Wales, neither scheme applies to any home costing more than £300,000.
If You Sell Your Home
If you have an equity loan through the Help To Buy scheme that you have repaid in full, it will not affect the selling of your home later.
If you have not yet paid off the loan, but you wish to sell your home, or if you have fully repaid the mortgage, you will need to repay the equity loan plus any increase in the value of the property.
For example, if you bought a home for £200,000 and sold it for £250,000, this would be a 25% increase in value. This would mean paying a further 25% on the initial equity loan, so the £40,000 loan would require a £50,000 repayment.
How much you are then left with to make a deposit on a new home will depend on how much of your mortgage has been paid off.
A mortgage guarantee will not effect the selling of your home.
How Do I Apply?
It is no longer possible to apply for a mortgage guarantee. To apply for an equity loan, you will need to speak with a Help to Buy agent.
A Help to Buy agent can talk you through all the available options and fully explain any relevant criteria. These agents are appointed by the Homes and Communities Agency, a Government agency, so you can trust in their work.
Help to Buy agents are the ones who administer the equity loans scheme and are the ones who will authorise you purchasing a home with the scheme. There may be other key decisions during the purchasing process that the agents make.
Each region has its own Help to Buy local website and its own telephone helpline. The exact contact process and what other options are available will depend on your area.