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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 currently two Help to Buy schemes available, equity loans and mortgage guarantees.

Equity loans

Equity loans are available to first time buyers and other home movers looking to move into a new-build home in England, with a house value of up to £600,000.

With an equity loan:

  • You provide a deposit of at least 5% of the property’s value..
  • The government loans you up to 20% of the property’s value by way of an equity loan.
  • A mortgage lender provides the borrowing for the remaining 75% balance to make up the total purchase price/valuation providing you meet their criteria..
  • Sub letting the property is not allowed and the property to be purchased using the Help to Buy scheme must be your only property that you reside 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 administration fee of 1.75% of the total loan value.
  • The administration fee will increase year-on-year by any increase in the Retail Prices Index plus 1%.

The administration fees you pay after five years do not reduce the total balance of the equity loan.  This will need to be repaid at the end of the mortgage term or when you sell the property – whichever is the earlier.

Mortgage guarantees

The mortgage guarantee scheme is available to first time buyers and other home movers looking to move into either a new-build or existing property in the UK with a house value of up to £600,000.

Under the mortgage guarantee scheme:

  • You provide a deposit of at least 5% of the property’s value.
  • A mortgage lender provides the borrowing for the remaining 95% balance to make up the total purchase price/valuation providing you meet their criteria.
  • The property must not be a shared ownership, shared equity purchase, a second home or be let out.

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 meet the mortgage repayments.

This type of borrowing carries much less risk for the lender when lending to those with smaller deposits.  In addition, it creates more choice for borrowers.  However, it is worth noting that as part of the scheme, lenders have 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. Contact us to arrange your FREE initial appointment.