Help to Buy Mortgages
What is the Help to Buy scheme?
The Help to Buy scheme was originally brought in by the government and its main aim was to help first time buyers get on the property ladder by lending them up to 20% (or 40% if you live in London) of the property’s value towards the deposit, with the remaining property percentage being covered by a mortgage. This essentially means you would have a healthy deposit on top of the 5% deposit you need to generate yourself.
The Help to Buy scheme enables first time buyers to get a better rate and greater affordability so you can look at houses you may not have originally been able to afford.
What is an equity loan?
The loan you sign up to with the Help to Buy scheme is known as an equity loan.
An equity loan is essentially a loan secured against your property. So the 20% or 40% you borrow from the government is secured against your new home. This essentially means if you are unable to pay the loan back, your home is at risk of being repossessed.
How does the Help to Buy scheme work?
The government loan you will receive if you enroll on the Help to Buy scheme is interest free for the first 5 years. After the first 5 years, unless you have saved enough money to pay the full loan back in that time, you will need to start paying interest.
Ideally, within the first 5 years of borrowing interest free, you would save enough money to pay back the money you borrowed and this can be done in several ways. You can pay the entire amount back in one lump sum, you can split it into several lump sums or you can remortgage your property if you have enough equity within it.
If you aren’t in a position to pay it back, when you reach year six of the loan, you will pay 1% interest which will increase each year until you are able to pay the full amount back.
Who is eligible for the Help to Buy scheme?
Currently, the scheme is available to anyone who is looking to buy a new build property. Initially the scheme was only available to first time buyers but now, if you are an existing homeowner looking to purchase a new build you can apply for the scheme.
However, this version of the scheme comes to an end in March 2021 and a new version of the scheme will be available on the 1st April 2021 and it’s believed the updated version of the scheme will only be available to first time buyers.
Can you put down more than a 5% deposit?
With the Help to Buy scheme, it’s required that you need to put down at least 5% of the property’s value as a deposit. So if you wanted to pay more than 5% as a deposit and have a smaller loan from the government, you can do so.
Alongside the Help to Buy scheme, you will also need to secure a mortgage on the remaining percentage of the property’s value (usually around 75% if you aren’t looking to buy a property in London).
This mortgage can be taken on the maximum term your lender offers, regardless of the fact that your Help to Buy equity loan needs to be repaid within 25 years.
How popular is the scheme?
The Help to Buy scheme is proving to be extremely popular, particularly among first time buyers who may struggle to raise enough money for a house deposit through more traditional means.
Since the scheme started in 2012, 273,000 properties in the UK have used Help to Buy, which is worth a combined amount of £73 billion.
How do you apply for the scheme?
The Help to Buy application scheme is a very straight forward online form asking you a few simple questions, but it’s worth noting that it is a separate application to your mortgage so you would have to do two different applications.
Once you have submitted the application, you should have a decision within about a week, which means you can then proceed with a full mortgage application and the purchase of your new property!
How long does the process take?
Completion of the entire process all depends on how far into the build the house you are purchasing is.
If you are a first time buyer, on average, from application to completion you will be looking at around 3 months. However, with new build houses, there can be factors that affect when the house is ready to be exchanged that are out of your control – such as bad weather delaying any building works.
What’s the first thing you should do?
If you are looking at buying a new build house under the Help to Buy scheme, we advise you to approach a mortgage broker before you do anything else. Following a conversation and exchange of information, a broker like us will be able to give you a decision in principle based on how much you will be able to borrow.
At this point, you will know if you are eligible for a mortgage and how much you can get, which means you can start to look at properties that you can afford. The danger of looking at properties before you have discussed your affordability with a mortgage broker means you could fall in love with a property that is completely out of your price range.
Once you have put an offer on your house, your broker will then find the right mortgage deal with a lender that’s completed suited to you. It’s at this point you would also submit your application for the Help to Buy scheme.
In order to complete your Help to Buy application, you will need to know the address of your new property, so it’s important to get an offer secured before you proceed with your Help to Buy application
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