What Is Help to Buy and How Does it Work?

Lots of you have asked, is it worth buying using the Help to Buy scheme? Unfortunately, there isn’t one, universal answer to this question. Everything depends on individual needs and personal circumstances.

Before we make any decision it will be worth finding out a bit more about the Help to Buy Equity Share scheme and how it works. Let’s start with some information about government loans. (The rules regarding repaying Help to Buy will be discussed in future blogs).

Help to Buy Equity Share has been available since 2013 Government loan is available to purchase new build properties only.

Key points to understand

• At this point in time, the Help to Buy scheme is projected to end in April 2021. This is not a certainty and may change in the future.

• To buy with the Help to Buy scheme you do not have to be a First Time Buyer, however, you cannot have any other property anywhere in the world. If you are a property owner this needs to be sold before you can complete it under the Help to Buy scheme.

• Property purchased using the Help to Buy scheme must be your only residence.

• Maximum property value bought through the Help to Buy scheme is £600,000.

• The minimum own deposit is 5% and the maximum own deposit is 20% of the property value.

• The maximum government loan is 20% of the property value (or up to 40% in some London boroughs).

• Until you pay off your Help to Buy loan there are two charges otherwise known as secured loans on the property. The first charge is your mortgage from your bank, the second charge is from Help to Buy.

• The Help to Buy loan is interest-free for the first 5 years. After this time, interest will be charged and the interest rate will increase every year.

Points to remember

1. Not every single developer is registered with the Help to Buy scheme.

   Before you pay your reservation fee to reserve your plot, make sure you will be entitled to the government loan through your chosen developer.

2. When you buy through the Help to Buy scheme, we recommend paying off your government loan as soon as possible – ideally within the first 5 years.

   This will save you money because you won’t be charged any interest at this time.  The maximum term of the Help to Buy loan is 25 years. After this period the Help to Buy loan needs to be repaid in full.

3. Any extensions or property modifications will need approval

   With regards to extending or significantly modifying property, this needs to be approved before the work is carried out. Home improvements that are required because of the owner’s disability are to be discussed on an individual basis.

4. Can I rent out my property if it is bought on the help to by scheme?

   Property bought using the Help to Buy cannot be rented out (there are few exceptions).

Attention

When repaying the Help to Buy loan, the final sum to be repaid will be calculated as a percentage of the actual value of your property not how much it was purchased for.

Example

• Original property value £200,000, HTB equity loan taken 20% = £40,000

• Property price when repaying HTB = £250,000

• Therefore the sum to be paid back is 20% of £250,000 (the current price)= £50,000

We hope this short guide will help your understanding of the Help to Buy scheme a bit better and help you to make a decision that is right for you and your family.

If you have got any additional questions regarding Help to Buy please contact Five Star Mortgages!

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