Help to Buy Scheme Explained

The Help to Buy Scheme.

‘Generation rent’ are looking for a way out. Young couples are searching for an exit route away from their landlords, so that they can build a future and a family from their very own home. Unfortunately, it’s not as straightforward as it seems. Despite the fact that average earnings have risen over the last decade, they have no way matched the excessive rise in property prices. Therefore, saving for a deposit becomes exceedingly more difficult. One of the ways to help combat this issue, is the government's Help to Buy initiative.

When did the Help to Buy scheme begin?

The Help to Buy scheme has been running for a few years now, having been initiated in April 2013 (England). At similar times both Scotland and Wales introduced their versions of the scheme. One of the main differences being that the Scottish scheme only covered properties up to £400,000, whereas the England and Wales included properties up to the value of £600,000. Although the schemes in Scotland and Wales have now come to an end, George Osborne decide to prolong the scheme in England until 2021.

What is the Help to Buy scheme?

Basically, the help to buy scheme is a government led initiative which was introduced to lend a helping hand for those looking to buy their own home. The government has worked with the banks and mortgage lenders to be able to offer lower deposits and lower rates of interest for fixed periods of time, so more people can afford to take the leap.

Help to Buy Equity Loan

One of the key incentives came from the government offering a 20% equity loan to buyers of newly-built properties called the Help to Buy: Equity Loan. To qualify, along with a 5% cash deposit, you will need to match the lender’s own criteria too. This method suits the government because, when the property is sold, they can reclaim the loan, and if the property value has gone up, they government can make a profit.

How much interest will I pay on a Help to Buy Loan?

On the Help to Buy equity loans, you don’t have to pay any interest or fees for the first 5 years. Until the 6th year where you’ll pay 1.75% interest on your loan amount. Following on from this, the interest rate will rise by inflation based on the Retail Prices Index (RPI), plus an additional 1% each year. These fees do not contribute to paying off your government loan. Instead, when you've paid off the mortgage or come to sell your home, you have to repay the equity loan as well as a share of any increase in its value.

Can I pay back more of my loan, if I wish?

You can negotiate ways and means of paying off your loan at any time. You will have to speak to your lender about such possibilities. Some lenders allow you to pay back around 10% of the current market value of your home, if you’ve got the cash.

Who is not eligible for the help to Buy scheme?

You will be rejected by the government if you already have a home. You cannot use this scheme to buy a second home or as a property to rent out. Choosing the Help to Buy scheme means that you can only take out a repayment mortgage. So, there's no option for an interest only mortgage, if that’s something you were considering. Other rejections will come down to lender’s and their assessment of each individual and their circumstances. If they deem you to be a risk, they are unlikely to offer you a deal.

Help to Buy at MortgageKey

There are several benefits to the Help to Buy scheme and multiple options available. Luckily, here at MortgageKey, we have the knowledge, experience and expertise to find the deal that suits you. We have excellent relationships with a panel of lenders and know who to go to, to acquire the type of Help to Buy mortgage you are looking for. Get in touch with us today about securing a Help to Buy mortgage.

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Representative Example

A mortgage of £150,000 payable over 17 years, initially on a fixed rate of 2.44% until 31/12/2022 and then a variable rate of 3.59% for the remaining term, would require 25 payments of £899.04 per month and then 179 payments of £973.58 per month. The total amount payable would be £198,466. Includes Lender Fee of £995 and Broker fee of £695.

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