If you’re buying a house for the first time or moving homes, you can take advantage of the Help to Buy initiative to help you move up the property ladder quickly.
The Help to Buy is a popular equity scheme introduced by the government for people purchasing new build properties. There are different Help to Buy schemes, and they work in slightly different ways.
Help to Buy Equity Loan
The Help to Buy scheme is available for people who want to buy new-build properties in England worth up to £600,000. You’ll have to come up with at least a 5% deposit, and the government can lend you up to 20% of the property’s price or up to 40% if you live in London. You’ll only need to borrow the remaining 75% or 55% for Londoners from your mortgage lender.
Interest rates and repayment
First off, you won’t pay any interest on the equity loan for the first five years. You’ll only start paying the interest from the sixth year pegged at 1.75%. From the seventh year, the fees will increase depending on the current Retail Price Index (RPI), along with 1% every year.
The actual equity loan will have to be repaid after 25 years or earlier if you end up selling the house. You’ll have to pay the same percentage of the proceeds as you got with the loan.
That means you’ll pay back 20% of the proceeds of the property sale if you’ve received a 20% equity loan in the Help to Buy scheme.
Applying for the Help to Buy Equity Loan
You can get started by talking to a Help to Buy agent in your locality or a developer in your choice neighborhood affiliated with Help to Buy.
However, you can’t apply for the scheme if;
- If you’re buying a second home
- If you’re buying a property to rent out
- Purchasing a property above £600,000
Help to Buy Shared Ownership
This scheme is popularly known as ‘shared ownership’ and is also a part of the Help to Buy scheme. In this case, you only have to buy a share of the property, between 25% to 70%.
The remaining shares will be held by a housing association which you will have to pay a small rent to.
Help to Buy ISA
The Help to Buy ISA works differently from both shared ownership and equity loan. It’s merely a tax-free savings account for people saving money to buy their first home. The government adds £50 for every £200 you save up to a maximum of £3,000.
The Help to Buy ISA can be used to buy a property worth up to £250,000 or up to £450,000 in London. The money will be paid to your solicitor when you finalize the purchase of your home.
Forces Help to Buy
This scheme is only available to people serving in the Armed Forces. Eligible individuals can borrow up to 50% of their monthly salary for a property deposit or some other costs associated with the home buying process.
Forces Help to Buy is interest-free and cannot be more than £25,000, which will have to be repaid in ten years. Force men can apply for this via the Joint Personnel Administration system. To be eligible, the individual must;
- Complete a minimum length of active service
- Have no less than six months left to serve at the moment of application, and
- Meet some medical categories/requirements
The Help to Buy Equity scheme was introduced to make homeownership easier for first-time homebuyers and people moving homes. The government has confirmed that it will extend this scheme from 2021 through to 2023. However, it will only be available for first-time buyers purchasing new homes from that time.