Help to Buy schemes

Help to buy schemes were set-up by the government to help all people struggling to save for a deposit. You can be a first time buyer or home mover with limited equity.

There are two schemes running, the first one is called Equity Loan which is available only on new build properties and the second called Mortgage Guarantee for both new build and pre-owned properties.

Help to Buy – equity loan

The Equity Loan part of Help to Buy is scheduled to run from 1 April 2013 until 31 March 2020 or until funding available for the scheme runs out.

There is no maximum income requirement for the equity loan scheme but it is available only on new build homes.

It can be accessed by both first time buyers and home movers for properties up to £600,000 in value in England and must be your only residence. With different schemes running in Scotland capped at £400,000 and Wales capped at £300,000.

It is not available for investment or buy-to-let properties or mortgages on an interest only basis, you must select a repayment mortgage to qualify.

The benefit of this scheme is that you only need a deposit of 5% of the property value and the government will provide a further 20% from the Homes and Communities Agency (HCA) making a deposit of 25%.

The loan to value (LTV) is very low and you will then need to arrange a mortgage of 75% of the property price. In this case the interest you will pay will be competitive when compared to other mortgages with high loan to value, such as a 95% LTV.

The big advantage of this scheme is the equity loan is interest free for the first five years. In year six a charge of 1.75% would be payable from this point onwards and will rise annually by the retail price index (RPI) plus 1%.

The equity loan must be worth at least 10% of the value of the property. You can repay the loan from the government at any time without penalty subject to a minimum amount of 10% until the loan is cleared.

You must pay back the loan after 25 years or when you sell your home. The value of the loan will depend on the market value of your property at that time as its share will benefit in the rise in property prices.

When you apply for an equity loan Help to Buy scheme you need to meet the lenders requirements, affordability and credit score checks.

London Help to Buy scheme

Extended in the Autumn Statement and launched in February 2016 the London Help to Buy scheme offers loans of up to 40% compared to only 20% for the rest of the country.

It is available on the equity loan basis for both first time buyers and home movers in the capital for new-build homes only and is not available to be let out or purchased as a second home.

The equity loan can be used to buy new properties in Greater London valued up to £600,000 with the maximum equity loan value offered of 40% and a minimum 5% deposit. The balance of 55% is a mortgage with borrowing limited to 4.5 times your earnings.

Loans are interest free for five years and after this time you will be charged interest starting at 1.75% which will rise each year in line with inflation plus 1%.

Help to Buy – mortgage guarantee

This scheme is scheduled to run from 8 October 2013 until 31 December 2016 or until funding available for the scheme runs out. The participating lenders in the scheme are as follows:

Help to Buy participating lenders
Aldermore Bank	Bank of Ireland (NI only)
Bank of Scotland	Barclays
Halifax	HSBC
Lloyds Bank	NatWest
Post Office	RBS
Santander	Virgin Money

The mortgage guarantee part of Help to Buy is different from Equity Loan in that you can use this for both new-build and existing homes. Homes with a value of up to £600,000 are eligible and there is no limit to the level of your income.

It is not available if you intend to rent out the property such as a buy-to-let property, or for buying a second home. Only a repayment mortgage can be selected the scheme, an interest only mortgage is not eligible.

A buyer only needs a deposit of 5% of the property value and the 95% balance is provided by mortgage from a participating lender. As the loan to value (LTV) is very high so will be the risk to the lender, so the interest would be higher than the Equity Loan part of Help to Buy.

To protect the lender from this risk the government provides a guarantee to the mortgage lender of up to a further 15% of the property value.

This is an agreement between the government and lender and does not affect the buyer. If the property value falls by more than 5%, the lender is protected. In exchange for the guarantee the lender will pay the government a commercial fee for every mortgage in the scheme.

This guarantee it is hoped will help keep the cost of the mortgage down as the risk to the lender has been greatly reduced.

When you apply for a mortgage guarantee Help to Buy scheme you are subject to the same checks as any other application such as a credit score, meet the lenders requirements as well as affordability checks.