Help to Buy FAQs
What is Help to Buy?
Help to Buy is a government scheme that provides first time buyers with an equity loan in addition to your mortgage, that’s interest free for the first 5 years. If you are able to put down a 5% deposit and take out a mortgage of 75%, Help to Buy will provide you with up to 20% equity loan outside of London. Within London the scheme still requires a 5% deposit on the property but you will be provided with up to 40% equity loan leaving you with just 55% of the value of the property to obtain a mortgage for.
How is London Help to Buy different?
If you are looking to buy a home in London with Help to Buy, you will still need a minimum 5% deposit based on the full market value of the home, however you may only need to raise a mortgage for 55% of the value, with the remaining 40% being the Help to Buy equity loan. Outside of London, you will need a 5% deposit, 75% mortgage and receive up to a 20% equity loan and the property purchase caps are lower than that of the London region, depending on where you want to live.
From April 1st 2021, the property purchase caps of Help to Buy will be £600,000 in London, the highest limit in the country, to reflect the increased house prices in this area.
What do I have to pay?
Both in London and elsewhere you will pay £1 management fee a month in the first 5 years and then during year 6 the loan will have a 1.75% interest rate, rising by the Consumer Price Index (CPI), plus 2% each April. This must be paid back within 25 years, when you pay off your mortgage or on sale of the home, whichever comes first.
What type and size of home can I buy?
Prior to April 2021, the requirements were simply that the home must be a new property and the value cannot exceed £600,000. From April 1st 2021, each region across the UK now has its own value limit when it comes to the scheme. In London, the value limit still stays at £600,000 but in various locations across the UK the maximum property price differs. The scheme is offered on a variety of new homes from apartments to houses, regardless of location and number of bedrooms, as long as the property price is below the value threshold for that area. Help to Buy is available on any new build home that meets the above criteria and the developer selling the home has funding available to offer the equity loan, rather than on specific plots like shared ownership.
What are the property value limits in different regions?
While London remains at the original limit of £600,000, the value limits that allow you to access Help to Buy will change from 1st April 2021. These are as follows:
|Region||Maximum property price|
|Yorkshire and the Humber||£228,100|
|East of England||£407,400|
Do I have to buy a new build home?
Yes, Help to Buy is only available on new build properties and developments.
Do I have to borrow the whole 20% loan (40% in London) available to me?
No, if you can afford to buy the home with a smaller loan borrowed then you are able to do so. You will need to borrow a minimum 5% equity loan to be eligible for the scheme.
Can I sublet my home if I buy with Help to Buy?
Unfortunately no. The scheme is available to help people buy a new home who could not have afforded to do so otherwise, therefore the home you buy must be lived in by you.
If, for example, a friend moves in the spare room, as long as there is no formal rental contract in place and you can afford to buy the home without their additional income of rent, this would usually be ok.
Can I use Help to Buy to purchase a shared ownership home?
No, Help to Buy and shared ownership are two different schemes that cannot be combined.
Can I use Help to Buy to purchase a Buy to Let home?
No, Help to Buy is designed to assist those to buy a new home that could not have afforded to do so otherwise, therefore cannot be used for Buy to Let purposes.
I’m an existing home owner; can I use Help to Buy?
While previous guidelines allowed you to have previously owned a home to take advantage of the Help to Buy Scheme, from 1st April 2021, you must be a first time buyer and have not owned a property previously. This also applies if you are buying the property with someone else; both of you must qualify as first time buyers to obtain the Help to Buy Equity Loan.
Can I take my loan with me to buy a new property in the future?
Unfortunately not. If or when you want to buy a new home in the future, your existing equity loan will be paid off via the sale of the property or at the end of the mortgage period- whichever comes first. While previously you may have been able to apply for a new loan upon buying a new property under the scheme, this is no longer possible as the criteria for the loan from 1st April 2021 now requires you to be a first time buyer. This is to ensure that those who would most benefit from the loan get top priority.
What deposit do I need?
The minimum deposit required to buy with Help to Buy is 5% of the full market value, however if you have more to put towards your purchase, you could take out a smaller mortgage, or borrow a smaller Help to Buy equity loan.
What is a Help to Buy mortgage?
With Help to Buy you must take a minimum mortgage of 25% of the value of the home. This is because the Help to Buy equity loan you borrow must sit as a ‘second charge’ on the property, therefore a mortgage must sit as a ‘first charge’.
What other costs do I need to consider?
Unlike Shared Ownership, you will need to cover the Stamp Duty costs at purchase, as well as other standard purchasing fees such as mortgage arrangement costs, solicitors fees and valuation fees. However it’s important to remember that the Stamp Duty Holiday is now running until the end of June 2021, so you will not have to pay Stamp Duty until this deadline if you are a first time buyer and the property you are purchasing is less than £500,000, anywhere in the country, as long as your purchase completes by this date.
Ongoing monthly costs will include utility bills, Council Tax and TV license for example, and depending on the home you buy, you may have monthly service charges.
How do I apply for Help to Buy?
To buy a home with Help to Buy, simply visit the developers’ show home or marketing suite at the development you wish to buy at. The sales team will guide you through the process of applying for the loan, which will include an initial affordability assessment that will be approved, or declined, by the Help to Buy Agent. This assessment will be carried out by an independent financial advisor, however they need to ensure the purchase is affordable for you both now, and when the interest is applicable on the loan.
How can I find out where Help to Buy properties are available?
Look out for the Help to Buy logo! You’ll often see it on new build developments and this is a sure way to know if the scheme is available. Online, check out developer websites or portals like Keaze to check out which developments are offering Help to Buy.
Do I get charged any interest on the loan?
The Help to Buy equity loan is interest free for the first 5 years. As of year 6, an interest rate of 1.75% plus RPI at the time will be charged and you will need to pay this on a monthly basis. The interest you pay will be based on the value of the loan you borrowed at the time of buying your home.
You will need to consider and plan for the additional monthly costs, alongside your mortgage and any potential service charges, and the post-sales agent will contact you with a few months notice before the interest needs to be paid. While you don’t pay back the loan monthly, it can be paid through a minimum of 10% installments or in full if and when you have the funds such as upon selling.
What are my responsibilities in the home once I move in?
What happens when I want to sell?
Unlike Shared Ownership, no company or organisation owns the 20% (40% in London) that you didn’t buy with a deposit and mortgage, therefore you will need to sell your home via a more traditional route of an estate agent.
How long do I have before I have to pay off the equity loan?
The equity loan is interest free for the first 5 years, however you will typically have 25 years (or for however many years you took out your mortgage for, up to a maximum of 25 years) to pay back the loan.
For example, if you took out a mortgage term of 25 years, you will have 25 years to pay back the loan. If your mortgage is to be paid off within 20 years, you will have just 20 years to pay back the loan, however if you borrow your mortgage over 30 years, you will have the maximum period of 25 years to pay back, or ‘redeem’ the equity loan.
How do I redeem my Help to Buy equity loan?
The loan can be paid back in full either on sale of the property, or in ‘chunks’ of 10% at a time. You cannot pay off part of the loan monthly, for example, as you would with a credit card.
Fees will be applicable but the post-sales agent will provide information on this.
How much do I pay back when I redeem my equity loan?
Help to Buy enables you to borrow a percentage of the value of a new home, not a specific monetary amount, therefore if the value of the home has increased when you come to redeem part of all of the loan, you will pay back the same percentage but based on the current value.
For example, if you buy a new home for £300,000, you will borrow a 20% equity loan of £60,000. If the value increases to £350,000 when you come to pay the loan back, you will be paying back £70,000, however the 80% of the financial contribution you put towards the home via a deposit and mortgage will still benefit from the increase in equity:
80% contribution of £300,000 = £240,000
80% contribution of £350,000 = £280,000
Can I pay off the Help to Buy equity loan within the interest free period?
Yes! If you can afford to pay back, or redeem, the loan with the 5 year interest-free period, you are able to do this.