Help to Buy
If you cannot afford to buy your own home then you may be able to get assistance through the government’s Help to Buy scheme.
There are two Help to Buy schemes, equity loans and mortgage guarantees.
Equity loans are available to first-time buyers and other home movers looking to move into new-build homes in England with a house value of up to £600,000.
With an equity loan:
- You will need a deposit of at least 5% of the property price.
- The government will lend you up to 20% of the property’s value as an equity loan.
- You will need to get a mortgage for the remaining 75% balance.
- You can not sub let the property and it must be your only property that you live in.
What do I pay if I have a mortgage and an equity loan?
- You pay your normal mortgage repayments.
- The Government equity loan is interest free for the first five years.
- From the sixth year onwards you will pay an admin fee of 1.75% of the loan value.
- The admin fee will increase year-on-year by any increase in the Retail Prices Index plus 1%.
The fees you pay don’t count towards paying back the equity loan so this will need to be repaid at the end of the mortgage term or when you sell the property – depending on which comes first.
The mortgage guarantee scheme is available to first-time buyers and other home movers looking to move into both new-build and older homes in the UK with a mortgage value of up to £600,000.
Under the mortgage guarantee scheme:
- You will need a minimum 5% deposit.
- The property must not be shared ownership, shared equity purchase, a second home or be rented out.
- You can borrow up to 95% of the property’s price from a mortgage lender providing you meet their criteria.
The government will guarantee any mortgage borrowing that is above 80% of the property’s value. For you as the borrower it will be no different to any other mortgage, in that you would be responsible for repaying the whole loan and could face repossession if you fail to make the mortgage repayments.
This type of lending will carry much less risk for the lender when lending to people with smaller deposits. In addition it should create more choice for borrowers. However, it is worth noting that as part of the scheme, the government is giving lenders the freedom to set their own interest rates meaning that there are no guarantees that the rate you are offered will be an attractive one.
David Allen Financial Services offers whole of market, impartial mortgage advice, searching the market to find you the best deal.