Understanding Help to Buy
Help to Buy encompasses a range of government schemes, this guide focuses on the Help to Buy Equity Loan scheme introduced in 2013. It has been designed to help people buy new build properties where without the equity loan, making the next step might be a little too expensive or just out of reach. The current Help to Buy scheme will run until April 2021, when it will be replaced with a new scheme which will be open to First Time Buyers only.
How does Help to Buy work?
With a Help to Buy Equity Loan you only need to provide a 5% deposit to buy your home (but can provide a higher deposit if you're able). The government assists by providing a Help to Buy Equity Loan of up to 20% (more in London), meaning that you're able to provide a total deposit of at least 25%.
Here's an example... Let's say you buy a home for £200,000 (outside London). Using this scheme, you put down a deposit of £10,000 (5%), and get a mortgage for £150,000 (75%). The Government will then support the gap with a Help to Buy Equity Loan of £40,000 (20%).
You’ll need to start paying back your Help to Buy Equity Loan after 5 years – but if you want to begin repaying earlier you can – the Homes England Mortgage Administrator will help you with your repayment arrangements.
How do I find a home which I can purchase using Help to Buy?
Your local Help to Buy agent will have listings of available properties to purchase using Help to Buy. For most of our lending area, this is Help to Buy East & South East. It’s also worth keeping a look out for home builders’ advertising of new developments – if you see the Help to Buy logo you’ll probably be able to use the scheme on at least some of the properties within the development.
Do you need a deposit for Help to Buy?
Yes, you’ll need a minimum deposit of 5% of the purchase price. The government will provide an additional 5 year interest-free loan of up to 20% of the purchase price to help increase the deposit. This will give you a total deposit of 25% - or more if you’re able to put in more than 5% yourself.
Do you need a mortgage for Help to Buy?
Yes, you will need to fund a total of up to 75% of the purchase price of your chosen new-build home through a repayment mortgage. Your local Help to Buy Agent will assess your application to ensure you are able to afford the mortgage repayments.
Do I have to have a Help to Buy ISA?
No, the Help to Buy Equity Loan and Help to Buy ISA are separate schemes. You can use the money from your Help to Buy ISA to help with your deposit whether you’re using the Help to Buy Equity Loan scheme or not. Help to Buy ISAs are available to until November 2019. However, The Cambridge do not offer a Help to Buy ISA, to find out more about these take a look on the Help to Buy ISA site.
Are there special rules for London?
For London boroughs, the Scheme extends further to offer a 40% Help to Buy Equity Loan. These areas are outside of our lending area, but another local Building Society may be able to help if you’re looking to purchase a home in London.
How do I apply for a Help to Buy Equity Loan?
The first thing you’ll need to do is to apply to your local Help to Buy Agent. They will assess your eligibility and process the next stage of your application. They will check to see if a mortgage is affordable for you, which is something we will also do. Once you have the Authority to Proceed from your Help to Buy Agent, you can apply for a mortgage. For full information on the application process, have a look at the Buyers’ Guide from Homes England.
Is the government loan interest-free?
The government loan is interest-free, but only for the first five years. After that, monthly interest of 1.75% of the equity loan amount will be applied. This then rises annually in line with any increases in the Retail Price Index. In addition to this there is a £1 monthly management fee.
What is my Help to Buy equity share?
If you bought a £200,000 property with cash you would have 100% equity.
Under Help to Buy you could use a 5% deposit (your own money), a 75% mortgage, and 20% Help to Buy Equity Loan. Your equity share would therefore be 80% (£160,000) and the government's share would be 20% (£40,000 equity loan).
If the value of the property rises to £250,000, the value of the equity shares adjust accordingly. So, unless you have paid back any Help to Buy Equity Loan, the government's 20% share would be valued at £50,000 (plus any loan interest accrued). This is why it's a good idea to pay back the Help to Buy Equity Loan during the first five years.
Is Help to Buy the same as Shared Ownership?
No. With Help to Buy you are purchasing 100% of the property using your own money for the deposit, combined with a government equity loan and a standard repayment mortgage.
Under Shared Ownership your deposit and mortgage loan cover a percentage of the property's value and you pay rent on the remaining percentage of the property. To find out more, read our Shared Ownership guide.
What fees do I need to consider?
With a Help to Buy Equity Loan, there are a few costs you’ll need to consider on top of what you would have to pay for any other mortgage (though those will still apply – all of our fees are listed on our mortgage pages). You’ll probably need to pay a reservation fee to your house builder, as well as your £1 per month management fee – and you might also have a monthly service charge. Remember that stamp duty may still apply, and that you’ll still need to pay your monthly mortgage amount when you start paying back your loan.
When do I have to repay the Help to Buy Equity Loan?
You can choose to repay the loan early or on the sale of the property. You should try to pay off at least some of the loan before the end of the first five years which are interest free. And remember, as you pay back the Help to Buy Equity Loan your equity share of the property will increase.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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