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Help to Buy vs 95% mortgages - what's the difference?

Posted 18 December 2015 by Keith Osborne

Help to Buy means you can purchase a home with a 5% deposit - but with other 95% mortgages available, what's your best option?

If you're looking to buy a home with a small deposit, you might be considering the government's Help to Buy scheme. Alternatively, you may be shopping around for a standard 95% mortgage with a bank or building society.

Both schemes offer the chance to buy a home with a 5% deposit. But what are the differences between the schemes? Should you always use Help to Buy or could a normal 95% mortgage be better for you?

What is a Help to Buy mortgage?

Help to Buy mortgages are available if you want to borrow between 80% and 95% of a property's value. They are available to both first-time buyers and existing homeowners in England, Wales, Scotland and Northern Ireland. 

As part of the scheme, lenders who are participating are able to get government-backed guarantees on every high loan-to-value mortgage they offer.

Help to Buy works like this: you put down a deposit of at least 5% and the government guarantees any mortgage lending above 80% of the property's value. For example, if you took out a 85% mortgage the government would guarantee to repay your lender up to 10% of its value if you defaulted.

As far as you, the borrower, are concerned a Help to Buy mortgage is no different to any other mortgage. You still have to repay your mortgage and you will be at risk of repossession if you go into arrears. The government guarantee is designed to protect the lender, not you.

Can I get a Help to Buy mortgage?

The scheme is open to both first-time buyers and existing homeowners. In order to be eligible for a Help to Buy mortgage you must:

  • have a deposit of at least 5%
  • be buying a home worth £600,000 or less (England), £300,000 or less (Wales) or £250,000 or less (Scotland)
  • be planning to live in the property and not rent it out/use it as a second home
  • have a capital and interest (repayment) mortgage

When a 95% mortgage may be a better choice

The Help to Buy scheme has been designed to encourage lenders to offer more high loan-to-value mortgages and your choice of 95% deals is now higher than it has been in some years.

You should remember that lenders participating in the Help to Buy scheme are free to set their own interest rates. This means that there is no guarantee that a Help to Buy mortgage will offer the lowest rates or be the most competitive product in the market.

If you are looking for an 85%, 90% or 95% mortgage you should certainly shop around and consider loans from lenders who aren’t participating in the scheme.

If you have a deposit, a good credit record and you can prove that you can afford your new mortgage then it doesn't matter whether you choose a Help to Buy or a standard 95% mortgage.

If the best deal for you is a Help to Buy product then you should consider that carefully. However, if you can get a better interest rate, secure improved terms or pay lower fees with a standard 95% mortgage, that might be the right choice for you. 

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