Jamie Ben, Mortgage Adviser, joins the podcast to discuss the Help to Buy Scheme.
What is Help to Buy?
Help to Buy is the name for a collection of government schemes designed to make it easier for people to buy a home.
The main schemes within Help to Buy are Equity Loans – where you can borrow money to give you a bigger deposit; and Shared Ownership – where you part-rent, part-buy a property. This has changed a little recently with the ability to ‘staircase’ your share upwards.
There is also the Help to Buy Lifetime ISA to help you save a deposit, with cash boosts from the government. Finally, there’s the new Mortgage Guarantee Scheme, launched in March 2021.
Why do people talk about ‘Old’ and ‘New’ Help to Buy?
The Help to Buy scheme was first launched in 2013 and many parts of it are now closed. But certain initiatives continue and the Mortgage Guarantee Scheme actually launched in April 2021. There are a few changes to some of the schemes – and what we’ll focus on today is the Help to Buy Equity Loan scheme.
How does the Help to Buy Equity Loan scheme work?
The Equity Loan is available on new build homes. If you have a 5% deposit, the government will offer you a loan to take your deposit up to 20% (or 40% in London). The loan is interest free for 5 years and you will need a mortgage for the remaining 80% (or 60%) of the property price.
This makes you more appealing to a lender, and you will get better interest rates. But what’s really important to take into account is what happens when the loan is no longer interest free.
It is usually worth buying a home that’s a little under your maximum budget. This way you have cheaper mortgage payments and can put some money aside to repay the loan in the future, rather than let the debt build up.
Can I remortgage to pay back the Equity Loan?
If at the end of the five years you’re not able to pay back the 20% or 40% loan, it is possible to look at a remortgage. It can be a little more complicated with lenders, but it’s feasible.
You can also pay the loan back in chunks if that works better for you.
Is it worth combining a 95% mortgage and the Help to Buy Scheme?
If you are looking to borrow 95% percent, then the interest rates you are looking at are fairly high – currently around 4%. But if you use the Help to Buy Equity Loan to put down a total of 25% deposit, your interest rates will be considerably lower than that – perhaps 2-3%.
In London, you can buy a property worth up to £600,000 and you can take a loan to help you put down a 40% deposit. So the monthly repayment will be dramatically different compared with a 95% loan.
What are the rules for the Equity Loan?
The government has allocated price caps for each region in the UK. to make sure that the scheme is helping people that need support. These are:
- London: £600,000
- South East England: £437,600
- East of England: £407,400
- South West England: £349,000
- West Midlands: £255,600
- East Midlands: £261,900
- Yorkshire and Humber: £228,100
- North East: £186,100
- North West: £224,400
You will also need to be a First Time Buyer – you have never owned a property at any point in the UK or abroad.
How do I get the right mortgage alongside my Equity Loan?
In my opinion, the priority is to pay off the Help to Buy Loan before worrying about paying off the mortgage. So you need to come up with a plan to pay off the loan, or perhaps take advantage of the equity by selling and moving elsewhere.
You will need to bear this in mind while choosing a mortgage, as well as making sure you’re eligible for the lender’s affordability criteria, in terms of income, credit score, etc.
Is every development part of the Help to Buy scheme?
Not every development is part of the scheme, especially some of the smaller ones. But most well-known or reputable builders with more than 30-40 properties in a development are likely to be eligible for Help to Buy.
What is the end date of the new scheme?
The new scheme ends in March 2023 – at this point, we don’t know whether it will be extended again. It will depend very much on the situation.
If you’ve got a five year Equity Loan, can you move house?
Once you’ve taken an Equity Loan you’re not a First Time Buyer anymore, so you can’t reapply for this scheme on a new property. You can’t port it to a new home either, so it needs to be fully repaid as part of the sale of your property. So it’s possible to move, but the loan must be settled as part of the process.
What’s the process to get an Equity Loan?
The first step is a simple one, which is just applying online. Just find your local Help to Buy agent, which is generally your local authority, and fill out an application.
The next step is to sit down with a broker to work out your property affordability and get an agreement in principle from a lender. Then you’re at the best point to start looking at properties.
Once you’ve seen a property you like and had an offer accepted, we then put your mortgage application in, alongside your application for the Help to Buy scheme. Your broker is useful support here as it’s not the easiest of the forms to complete. From there, your solicitors will handle the details on your behalf.
Can’t I look at some properties before worrying about the mortgage details?
It’s heartbreaking as a broker to tell people they can’t afford a house they have their heart set on. We always advise that you are better off understanding your budget first. You’re also in a much stronger position as a potential buyer too – you’re more likely to have an offer accepted.
You could also find that you can afford a more valuable home than you thought – so you won’t miss out on a potential opportunity for a dream home.