Posted 30 December 2016 by
Rupert BatesThe government created the Help to Buy scheme to assist both first-time buyers and current homeowners in buying their new home. Help to Buy in England provides hard-working people with the financial assistance they need to find their perfect home through a five-year interest-free equity loan from the government.
The loan is 20% of the property value, meaning that you only have to put down a 5% deposit, making buying a home much more affordable. With 25% of the property covered, you just need to find a mortgage for the remaining 75% of the property. This scheme is available in England on new builds priced up to £600,000 and is available until 2021.
Some criteria that you must follow in order to be eligible for Help to Buy are that this must be the only home that you own, this should be your personal main residence and this new home must not be purchased to rent.
The equity loan lasts a maximum of 25 years however, after the first five years you must pay back an interest fee of 1.75% of the amount borrowed to the government, in monthly repayments. From the seventh year that rate increases by the Retail Prices Index plus 1%. When you come to sell your home, or you are at the end of your mortgage, the government should receive 20% of the property value at the time of sale.
Help to Buy is especially popular amongst first-time buyers as it allows them to step on to the property ladder in a more affordable manner. There are many new home developers and high-street banks that offer Help to Buy, in conjunction with a mortgage.
To apply for the scheme contact your local Help to Buy agent.
Working example
| Property price | £400,000 (100%) |
| Initial deposit | £20,000 (5%) |
| Equity loan | £80,000 (20%) |
| Remaining mortgage | £300,000 (75%) |
Help to Buy: Shared Ownership
Under the Help to Buy ‘umbrella’ brand, Shared Ownership is a part-buy/part-rent scheme for purchasing homes that is open to people who are unable to buy a suitable property on the open market. The buyer purchases a share of the property (initially between 25% and 75%), paying rent on the remainder, and is able to buy further shares (known as ‘staircasing’) over time until 100% of the property is owned.
A subsidised rent (approximately 80% of the market rate) is paid on the part of the property not purchased, and the buyer must also pay 100% of ground rent and service charge.
Only certain properties are available for Shared Ownership, usually released by the local authority or by a housing developer as part of a new homes development.
Find out the details of the Shared Ownership scheme here.
Useful links
Search Help to Buy
What is a Help to Buy ISA?
The buying process Q&A
Two-year or five-year fixed-rate mortgage?
10 mortgage questions to ask
Repaying your Help to Buy equity loan
How to use your equity to help your kids buy a new home&nbnbsp;
What you should teach your kids about mortgages and borrowing