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The Help to Buy equity loan scheme has helped more than 210,000 borrowers to climb on to the property ladder since its launch in 2013.
It offers many attractive benefits to first-time buyers – and home movers – but how does it actually work?
1. The equity loan scheme lends up to 20% of the price of a new-build interest-free for five years. In February 2016, the maximum loan size was doubled to 40% in London, to take account of the capital’s higher accommodation prices.
2. Purchase prices are capped. Applicants can choose from selected new-builds costing up to £600,000, so the maximum loan size is £240,000 in Greater London and £120,000 outside it.
3. You still have to raise a 5% deposit and take out a mortgage for the rest.
4. When Help to Buy borrowers reach the end of the interest-free five-year period they have to start paying interest on their loan. You’ll pay 1.75% interest on the outstanding amount, rising annually by the increase in the Retail Price Index plus 1%.
5. The actual loan itself has to be paid back either when the property is sold, or after 25 years. You repay the same percentage you borrowed at the outset, so if your home has increased in value the sum will be more than the original loan, although if it’s fallen into negative equity, it will be less. You can repay the equity loan earlier, but each repayment must be at least 10% of the property’s value at the time, and there will be a valuation fee.
6. Help to Buy is open to existing as well as new homeowners, yet first-time buyers account for more than four-fifths of the total.
7. Using the Help to Buy scheme means that you should get a more competitive mortgage deal, as borrowing 55% or 75% of the value of the property means you gain access to lower rates of interest.
8. You will need a specialist Help to Buy mortgage rather than a mainstream mortgage. A mortgage broker can scour the market to find you the right mortgage at the lowest rate.
9. You will also need to apply for a Help to Buy equity loan, which runs separately from your main mortgage. This will be organised through your local Help to Buy agent. Visit www.helptobuy.gov.uk.
10. Applicants are not eligible for Help to Buy if they own anything else, even if you don’t live there – for example, a buy-to-let or inherited property.
You won’t be eligible for if you’re applying with a partner who already owns a home unless that property is being sold to part-fund the new purchase.
11. As a Help to Buy homeowner, it’s possible to buy out some of the government stakes. Known as ‘staircasing’, you can purchase chunks of 10% of the property’s value. When staircasing, you’ll need to pay for a valuation plus an administration fee of £200.
12. First-time buyers can save in a Help to Buy ISA to boost their deposit. A maximum of £200 a month can be saved, plus an extra £1,000 in the first month. If you pay in £12,000 over 55 months you qualify for the maximum £3,000 government bonus. It will be paid only if the savings are put towards a deposit on a property. The money is paid directly to the solicitor dealing with your house purchase at the point of completion – you don’t get the cash in hand. It’s only available as a cash Isa.
13. Help to Buy was due to finish but has instead been extended until 2023 with major changes that come into play in April 2021. From then it will be restricted to first-time buyers only, so anyone owning or who has previously owned a home will no longer be eligible. Regional price caps are being introduced which means maximum purchase prices will drop to £437,600 in the South East, and £407,400 in the East of England. The maximum price in London will remain at £600,000.
14. Critics of the Help to Buy scheme have blamed Help to Buy for inflating property prices and lining the pockets of new-build developers.
15. Help to Buy isn’t right for everyone. Speak to your independent mortgage broker to work out if it’s the best option for you and your circumstances.