The Help To Buy mortgage scheme

Discover how the Help To Buy government scheme can make it more affordable to buy a new-build property in the UK.

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By

Matthew Boyle

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The Help To Buy scheme allows you to accept an equity loan from the government to help you purchase a new-build property in the UK.

What is Help To Buy?

This loan is interest-free for five years, although the interest rate will increase every year after that.

In England, you can borrow up to 20% of the property’s value to put towards your mortgage deposit. With this assistance, you’ll only have to stump up at least 5% of the property’s value yourself (these figures differ in London, Wales, Scotland and Northern Ireland).

Help To Buy not only makes it easier for mortgage applicants to save for a mortgage deposit, it also helps to reduce their monthly mortgage payments. After all, their mortgage will only be worth 75% of the property’s value at the very most.

It has proved to be an incredibly popular scheme, with hundreds of thousands of loans having been granted since it launched in April 2013.

Who qualifies for Help To Buy?

Right now, anyone can apply for a Help To Buy equity loan provided they’re eligible for a mortgage and are deemed to be able to afford the repayments. However, from April 2021, this scheme will be available to first-time buyers only.

There are only specific types of properties that are participating in the Help To Buy scheme. These are new-build properties worth up to £600,000 in England, £300,000 in Wales or £200,000 in Scotland.

To discover participating properties in your area, you’ll need to contact your local Help To Buy agent.

You’ll have to use the property as your main residence in order to qualify for a Help To Buy equity loan.

How much can I borrow?

Right now, you can borrow up to 40% of your property’s value in London, 20% in the rest of England and Wales or 15% in Scotland.

However, from April 2021, the amount you can borrow in England will be regionally capped. You’ll only be able to borrow 1.5 times the Autumn 2018 regional average first-time buyer price forecast.

These price caps are detailed below:

North East£186,100
North West£224,400
Yorkshire & The Humber£228,100
East Midlands£261,900
West Midlands£255,600
East of England£407,400
London£600,000
South East£437,600
South West£349,000

How much interest will I pay on Help To Buy equity loans?

You’ll pay no interest on Help To Buy equity loans for the first five years.

In the sixth year of the loan, you’ll pay interest at a rate of 1.75%.

Each year, this rate will be multiplied by the Retail Price Index (RPI) inflation figure plus 1%.

Example: If in the seventh year of your loan, the RPI figure was 5%, your interest rate would increase by 6%. As 1.75 x 1.06 = 1.855, your interest rate for the upcoming year would be 1.855%.

Since the rate will continue to increase faster than inflation every following year, it is in your best interests to pay it off as soon as possible.

Shared Ownership

Shared Ownership is another government scheme that makes it more affordable to buy a home. Technically, it falls under the Help To Buy umbrella, although it works completely differently to the equity loan scheme.

With this scheme, you can buy between 25% and 75% of a home and pay subsidised rent to a housing association on the remainder. When you can afford to buy a further portion of the home, you are free to do so.

This scheme is available to first-time buyers and existing shared ownership participants only. You can learn more about how it works in our full guide.

Help To Buy mortgages vs traditional 95% mortgages

There is a wide range of mortgage lenders offering traditional 95% mortgages. That means it’s possible to buy properties with a 5% deposit, without using Help To Buy.

So, which option is better?

The key differences between these two options are highlighted below:

Help To Buy mortgage

  • You’ll be making mortgage repayments on a smaller percentage of the property. This means your monthly repayments will be lower and you may even be offered a better interest rate.
  • However, after five years, you’ll begin paying interest on your equity loan and the rate will increase significantly every year.
  • Until the loan is repaid, the government will own a stake in your home, meaning you benefit less from the value of your property rising.
  • Help To Buy is only available on participating new-build properties.

Traditional 95% mortgage

  • You’ll be making mortgage repayments on a loan worth 95% of the property value. You’ll pay more each month than with a Help To Buy mortgage.
  • However, you don’t have to worry about repaying an equity loan with an ever-increasing interest rate to the government.
  • You’ll own 100% of your home, meaning you fully benefit from your property value rising.
  • You’re free to purchase any type of property worth any value, as long as you’re deemed to be able to afford it.

Frequently asked questions about Help To Buy

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