What is Help to Buy?
Help to Buy does pretty much what it says on the tin, giving assistance to first time buyers and existing homeowners.
Am I eligible for a Help to Buy mortgage?
If you want to be considered for Help to Buy, you must
- Be able to stump up a deposit of at least 5% of the purchase price
- Only look at homes which cost no more than £600,000
- Agree to live in the property – second homes or renting out your new home are a no-no
- Agree to take out a repayment mortgage (rather than interest only)
Help to Buy equity loans
An ‘equity loan’ is a method of raising money on your property in return for a share of that property. The scheme will currently lend you anything up to 20% of a new-build property, leaving you with 80% to fund. So, if you take a 20% equity loan, and also come up with a 5% deposit, you need only take out a mortgage for 75% of the property’s value.
Your loan is interest free for the first five years, and then you’ll pay a monthly fee of 1.75%, rising annually with inflation.
After the end of your mortgage term or when you sell your home, you’ll need to repay the loan at 20% of the current rather than original market value.
If you’re buying in London, where properties are especially expensive, you can ask for an equity loan of 40% of the value of a new build property, rather than the 20% available in the rest of the country.
Help to Buy Isa
This is a way that first time buyers can save for a deposit, then get a decent bung from the Government for being so responsible.
You’ll need to open your account with £1,000, and you can add anything up to £200 per month thereafter. Once you’ve saved, for example, £12,000, the Government will add an additional £3,000.
This facility works on a per person basis, so if you’re buying with someone else, the above illustration will yield £6,000 from the Government. Nice.
With minimum deposits become increasingly difficult as property prices rise, shared ownership can be a lifesaver.
You’ll need to be a first time buyer, with a household income of no more than £80,000 per year, or £90,000 in London.
Sometimes known as ‘part buy, part rent’, you buy a share in the property of between 25% and 75% from a Housing Association, take out a mortgage, and then pay rent on the proportion of the property you have chosen not to buy. As time goes on, you can increase the share of the property that you own (known as “staircasing’).
So, if you choose to buy a 25% share of a £400,000 property, the value of what you are buying is just £100,000, making deposits and mortgage repayments seem rather more realistic. Of course, you will still have to pay rent on the remaining £300,000 value, but this remains one of the very best ways to get on the housing ladder.