Your Guide to Help To Buy Mortgages
Help to Buy Mortgages are a hot topic for first-time buyers across the country.
Before getting a mortgage on your first home, it’s important to know the exact differences between a normal mortgage and a Help to Buy mortgage, so you can make the decision that’s right for you.
We’re taking a look at what differentiates Help to Buy mortgages, focusing especially on the Help to Buy Equity Loan scheme. The scheme has now been extended for another two years, which is great news for any would-be property owners.
Keep reading to find out everything you need to know.
What is a Help to Buy mortgage?
A Help to Buy mortgage is available to anyone in the UK who wants to buy their first property through one of the government’s special schemes.
The Help to Buy Equity Loan scheme is a government-backed initiative that helps first-time buyers to get on the property ladder.
It was first introduced in George Osbourne’s 2013 budget speech to make buying a first home more affordable and realistic. This was part of the government’s wider goal to reduce the number of renters and increase the number of home owners in the UK.
The Help to Buy Equity Loan scheme has now been extended, running from 1st April 2021 until 31st March 2023.
To qualify for the Help to Buy scheme, you must meet the following criteria:
- You must be a first-time buyer
- You must be aged 18 or older
- You must live in England
- 5% of the property price must be put down as a deposit
- The price of the property cannot exceed £600,000 (regional caps apply)
- The property must be a new build
- You must have a clean credit record to prove you can afford the loan repayments.
How does a Help to Buy mortgage work?
The Help to Buy scheme involves the government providing an equity loan to a buyer, reducing the size of the deposit they need to get a better mortgage rate.
This means a buyer only needs to provide a 5% deposit for a new build home. The government will then provide a 20% equity loan (or 40% if you live in London), and your lender will grant you a 75% loan-to-value (LTV) mortgage, providing you meet the qualifying criteria.
A 75% LTV mortgage has a significantly better rate of interest than a 95% LTV mortgage, meaning the total amount of money you spend on interest payments will be far less.
For example, if a house costs £250,000, then:
- The buyer would need a 5% deposit, which would be £12,500
- The government would provide an equity loan of £50,000
- The mortgage lender would provide the remaining 75%, or £187,500.
Crucially, as the government are offering a 20% equity loan, they’ll begin charging interest on your outstanding loan after the first five years.
From year six onwards, you’ll be charged 1.75% interest, and this rate will increase in line with CPI inflation plus 2% (or 1% for anyone who used the scheme before December 2019).
Be aware that there are regional caps on the maximum price you can buy a property for using the Help to Buy scheme.
For more information on this, check out Money Helper’s useful list of the regional caps.
How do I repay the government Equity Loan?
If you do decide to apply for a government Equity Loan, you’ll either need to pay it back when your house is sold, or in 10% chunks of the property’s value.
As it’s an Equity Loan, the government will be entitled to 20% of the sold price, which may be significantly more than the 20% of the purchase price they initially loaned you as a buyer.
For example, if your home was bought for £250,000, the government would have provided £50,000 (20%) as an equity loan. If, five years later, your house sells for £350,000, you’ll owe the Government £70,000 from your sale, which represents 20% of the sold price.
Therefore, Help to Buy mortgages are a good idea if you need a helping hand to get on the property ladder, but they do sometimes come at a price later down the line.
How do I get a Help to Buy mortgage?
Before you apply for a Help to Buy mortgage, you must make sure you have enough money to pay for:
- A fee to reserve a new build home (up to £500)
- A 5% deposit available on exchange of contracts
- Any other fees on completion of the house (stamp duty, legal fees and mortgage fees).
To apply for a Help to Buy mortgage, you need to get in touch with a Help to Buy agent who will check whether you’re eligible and can afford the payments that come with the equity loan.
The agents are split into three groups: the midlands and London, the north, and the south. These agents can give you the go-ahead to buy a new build home through the Help to Buy Equity Loan scheme.
Once you’ve been approved by a Help to Buy agent, don’t forget to let your mortgage lender or broker know – they’ll make sure that the mortgages they recommend are suitable for you.
What deposit do you need for a Help to Buy mortgage?
Buyers need a 5% deposit to qualify for a Help to Buy mortgage. The government will then loan you 20%, giving you access to a 75% LTV mortgage rate from lenders.
What is the mortgage rate for Help to Buy mortgages?
Help to Buy mortgage rates aren’t that different from the mortgage rates offered to people who aren’t using the scheme.
This was the government’s intention when introducing the scheme, making sure that first time buyers get a better chance at owning a home, without being punished by the higher cost of monthly repayments on a 95% LTV mortgage.
Money.co.uk has provided a list of mortgage providers and their rates for first time buyers who are using the Help to Buy equity loan scheme, letting you compare different deals.
Finding a Help to Buy mortgage with Emoov
At Emoov, we’ll give you access to more than 12,000 mortgage products from 90 different lenders. By using our services, you’ll get access to exclusive rates and tailored options.
With Emoov, you’ll be assigned a dedicated mortgage expert who can recommend the best option for your needs.
We’ll give you total support every step of the way, with completely free, unbiased advice – your best interests are our number one priority.
To kickstart your home buying journey, get in touch with us today.
The key takeaways
Overall, a lot of the key details of a Help to Buy mortgage are pretty similar to a normal mortgage.
Whilst you do have to meet the criteria, the scheme is very inclusive, open to first-time buyers across the country.
First-time buyers shouldn’t worry about any hidden consequences of using a Help to Buy scheme; just remember to have a plan in place for repaying the government Equity Loan, as these payments can really add up over time.
The scheme was introduced with the express purpose of making sure that mortgage providers don’t favour buyers who aren’t getting government help.
Help to Buy schemes are a great way to get on the property ladder, providing a fantastic opportunity for the next generation to afford their own homes.