Help to Buy is a government scheme first announced in the March 2013 Budget. It is designed to help anyone struggling to save a deposit for their first home or move up the property ladder as they have limited equity. There are two main elements of the Help to Buy scheme, which we explain below:
- Equity Loan
The first part of Help to Buy mortgage, launched on April 1, 2013 and available until 2020, is an Equity Loan scheme. It is open to both first-time buyers and homemovers – but is restricted to new-build homes.
Under this part of the scheme, the buyer is only required to raise 5% of the property value as a deposit. The government will stump up a further loan of up to 20% through the Homes and Communities Agency (HCA). With a combined deposit of up to 25%, you will then have access to more attractive mortgage rates from lenders participating in the scheme.
But it’s the cost of the government’s 20% slice of the loan that’s really competitively-priced. For the first five years, it’s interest-free. In year six, you will be charged 1.75% which will climb at a rate of 1% of that figure plus any increase in inflation (as measured by the Retail Prices Index (RPI)), every year thereafter.
Borrowers can choose to repay the equity loan at any time, without penalty. You can pay back either 10% or 20% of the total amount, so long as the loan is worth at least 10% of the value of your home.
- Mortgage Guarantee
The Mortgage Guarantee element of Help to Buy is designed to give first-time buyers and home movers with a small deposit a better chance of getting a mortgage. The Mortgage Guarantee scheme was originally scheduled for launch in January 2014, but the government brought the date forward and it was officially unveiled on October 8, 2013. It is scheduled to end on December 31, 2016.
Unlike the Equity Loan part of Help to Buy, the Mortgage Guarantee element applies to both new-build and existing homes.
Under the scheme, buyers will only need to raise 5% of the property value, while the government will then provide a guarantee to the mortgage lender for up to a further 15%.
Saving for a large deposit can be a long and tiresome journey, and sometimes, may even seem impossible. With the government’s Help to Buy scheme you can buy a home with as little as a 5% deposit and have lower mortgage repayments than you would with a standard mortgage arrangement as saving for a deposit is a long and tedious journey.
Available throughout the UK, the scheme allows you to take out an equity loan of 15% of the property value from the government. This, combined with your 5% deposit, means that you’ll only need an 80% mortgage on your home. Contact Simply Mortgage Place today to discuss your options.