Getting a Mortgage with Help to Buy

Posted 10 September 2018

Looking to get a Help to Buy mortgage? Our guide shares all you need to know about getting a mortgage with Help to Buy...

Credit: All you need to know about Help to Buy

Back in 2013, the government announced the launch of Help to Buy, an innovative set of initiatives designed to help first-time buyers onto the property ladder.

There are three main Help to Buy schemes now available. Keep reading for a comprehensive guide to how you can use Help to Buy to purchase your first home.

Help to Buy: Equity Loan

The Help to Buy equity loan scheme is designed to help you buy your first home if:

You have at least a 5% deposit
You are buying a new build property

Under the scheme, the government will lend you up to 20% of the purchase price of a new build property, interest-free over five years. This 20% loan allows you to choose a cheaper mortgage product (as you only need to borrow 75% from your mortgage lender).

The government retains a 20% stake in your home and you pay this back at the end of the mortgage, or when you sell – whichever comes first. The government takes 20% of the sale price, whether this is higher or lower than the amount you borrowed.

You can also repay some of this loan without selling your home, as long as it's a minimum of 10% of the property's current value.

The loan is interest-free for five years and you then start paying interest from year six. The interest rate is 1.75% per annum, increasing annually based on the Retail Prices Index.

You can use the scheme to buy a new build home worth up to £600,000 (£300,000 in Wales).

Most major lenders offer Help to Buy mortgages including Santander, Barclays and NatWest.

Here's an example of how the scheme works:

You buy a new build home from £150,000 using the equity loan scheme.
You put down a deposit of 5% (£7,500) and you borrow 20% from the government (£30,000)
You get a mortgage at 75% loan-to-value (£112,500).

If you're buying in London then you can take out an equity loan of up to 40% of the property value (interest-free for the first five years). Again, this should allow you to choose a cheaper mortgage deal, as you only need to borrow 60% of the value from the lender.

Looking to know the mortgage basics? Here's your complete guide to mortgages and how they work.

Help to Buy ISA

If you're a first-time buyer saving for a deposit, then the Help to Buy ISA is a good option. You can earn tax-free interest on your savings, and the government will add 25% free cash on top of what you save.

You can save up to £1,200 in the first month, then up to £200 a month after that. You don't have to save the maximum £200 a month, although if you miss a month you can't make it up by adding more than £200 in a subsequent month.

You have to save a minimum of £1,600 before you can claim an initial bonus of £400. The maximum bonus is £3,000 – to qualify for this you will need to have saved £12,000. When you decide to buy a home you can withdraw the money. Your solicitor will apply for the bonus and you close your ISA.

You cannot open more than one Help to Buy ISA, and you can't open a Help to Buy if you already have another active cash ISA in the same tax year. However, if you are buying jointly you can each open and save into an ISA and take advantage of the bonuses. You could potentially earn a bonus of £6,000 if you are buying jointly and you have both maximised your savings.

Help to Buy ISAs are available until the end of November 2019. You can continue paying into the scheme after that date but you must claim your bonus by December 2030.

Lots of banks and lenders are involved with the Help to Buy ISA scheme, including NatWest, Santander, Nationwide, Virgin Money, Barclays and Lloyds.

Bear in mind that the money you save into your Help to Buy ISA can only be used towards the purchase of a property you intend to live in. The property you buy must not exceed the value of £250,000 (£450,000 in London) although you can use it on any type of mortgage and property, not just new builds.

You can also combine the Help to Buy ISA scheme with other government schemes, such as Help to Buy equity loan.

Shared Ownership

If you don't own a property currently (even if you have owned one in the past) and your household earns £80,000 a year or less (£90,000 in London) then you can use the Shared Ownership scheme.

This is a part-buy/part-rent scheme where you initially buy a percentage of the property. You then pay an affordable rent on the remainder of the property until you want to buy the remaining shares in your new home.

This scheme offers you a way of being able to pay around 25% to 75% of the purchase price of the property and then pay the rest later when you can afford it. You'll need to take out a mortgage to pay for your share of the purchase price, or fund this through your savings.