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Everything You Need to Know About The Help to Buy Scheme

The Help to Buy scheme is a fantastic option for first-time buyers looking to get on the property ladder, but it can be confusing.

Continue reading to learn more about the Help to Buy process and how it works, as well as how to participate before the scheme comes to an end.

What is the Help to Buy Scheme?

The Help to Buy scheme, which is available in England and Wales, aims to assist first-time buyers in purchasing a home. 

Why was the scheme created?

The government Help to Buy scheme was created in 2013 to assist those who were having difficulty saving for a large deposit.

How the Help to Buy scheme works

The Help to Buy scheme provides an equity loan (often referred to as the Help to Buy government loan), in which the government lends money to first-time buyers to help them purchase a new property. 

You must have a deposit that is at least 5% of the overall purchase price of the home. For example, if a new-build house costs £215,000, you must have at least £10,750 for your deposit. 

In London, you can borrow 40% of the purchase price. Everywhere else in England and Wales, you can borrow 20% of the purchase price. As part of the Help to Buy scheme, the amount you borrow is interest-free for five years.

The Help to Buy scheme has maximum purchase price amounts in order for it to be eligible for the scheme. Depending where you are looking at buying a house will depend on the maximum amount. For example:

RegionMaximum Purchase Price
North East£186,100
North West£224,400
Yorkshire & Humber£228,100
East Midlands£407,400
West Midlands£255,600
East of England£407,400
London£600,000
South East£437,600
South West£349,000

Unfortunately, if the house you’re looking for is over the maximum price for the specific area – you won’t be able to use the Help to Buy scheme.

The eligibility criteria 

Here is the Help to Buy criteria. To take part in the Help to Buy scheme you must:

  • Be 18 or over
  • A first-time buyer
  • Have at least a 5% deposit
  • Be able to afford fees and interest payments
  • Buying a new build property

Understanding the equity loan

The equity loan is money that you borrow for the government towards your house purchase. You can borrow up to 20% (40% in London) of the property value. The percentage you choose to borrow is up to you – but your minimum deposit must be 5%.

The equity loan helps with your deposit – but you will still need to search and be accepted for a mortgage.

However, the mortgage amount you’ll borrow will be smaller. There are no “specific” help to buy mortgage rates – but you can still try get the best deal possible. At Sett, we have access to a huge selection of lenders to help you find the best rate for you and your situation.

For the first five years, you don’t have to pay any interest on your equity loan. Once the five years is up, there is an interest fee of 1.75% of the amount of your loan, at the time you took it out.

However, it is extremely important to know that this interest rate may rise due to an increase in RPI.

When it comes to paying the equity loan back – you can start repayments as soon as you want to reduce the government’s share in your homes equity. 

If you’re going to sell your house – the equity loan must be completely repaid by the time you sell it, or when your mortgage is paid off.

If your home has an increase in value when it comes to selling it – you have to give the government a share of this.

Exploring the Help to Buy scheme pros and cons

There are both advantages and disadvantages to the Help to Buy scheme, take a look below:

Pros

  • You don’t have to save a big deposit
  • In some cases, you can have access to cheaper mortgage rates
  • The equity loan is interest-free for five years
  • You can get onto the property market sooner
  • You have a total of 25 years before you need to pay back the loan in full

Cons

  • The only choice of house for this scheme are new builds
  • There are price caps that are dependent on region
  • After five years, you will be charged an interest fee on the equity loan – which will increase in line with inflation.
  • It can be harder to remortgage
  • You need specific permissions for home-improvements
  • Negative equity is a risk
  • You have to give the government a share of any value increase

When is the Help to Buy end date?

The Help to Buy Scheme closes for new applications at 6PM on 31st October 2022. At the time of writing, there are no plans to extend the scheme.

However, the Help to Buy ISA scheme, which is a bank account that offers a 25 percent bonus on savings, is still available to use for those that have the bank account. If you never created a Help to Buy ISA bank account before 30th of November 2019 – you are not able to participate in this scheme.

There are other options to gain a bonus towards your first home deposit, such as the Lifetime ISA bank account.

How to participate in the Help to Buy scheme

If you want to participate in the Help to Buy scheme, you should first speak to a mortgage advisor about the budget you’re looking at for your property search.

Here at Sett Mortgages, whether you’re looking for information on how to understand the Help to Buy mortgage process, the Help to Buy application or a new build property search, we can help.

Get in touch today to see how we can guide you through your Help to Buy journey.

Author

  • Elliott Benson

    Meet Elliott, a seasoned mortgage broker with over nine years of experience in property, and the founder of Sett Mortgages. With a background as a sales negotiator and mortgage services manager, he is a trusted professional with extensive knowledge in all things mortgages. Elliott's empathetic approach and clear communication style make him an approachable expert, decoding the complexities of mortgages for clients from diverse backgrounds. He stays up-to-date with the latest trends and regulations, offering cutting-edge solutions tailored to clients' needs. Committed to their financial well-being, he guides them through the mortgage process, ensuring countless successful and satisfied clients. Elliott's passion extends beyond his practice; he's a prolific writer, sharing his knowledge and insights in industry publications and blogs. His mission is to empower others with the information they need to make sound financial decisions.

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