What you need to know about the Help to Buy Scheme
The Help to Buy scheme is a new government initiative designed to help first time buyers and existing homeowners move up the property ladder. It is one way the government is trying to boost the economy after the recession and get homeowners moving again. This blog looks into the details of the scheme and how you may be affected by where you live in the country.
The Help to Buy government scheme can make it possible for homeowners to purchase a home with just a 5% deposit. It is split into two different and distinct schemes:
- The Equity Loan
- The Mortgage Guarantee
There are key differences and key similarities between the two schemes, which we have outlined below. You can also read this infographic about the scheme.
Option 1: The Equity Loan:
The Equity Loan basically gives the government equity in your home in a roundabout way. For example, if you wanted to create a new build home worth £200,000, you would fund the first 5% or £10,000, the government would loan you the next 20% or £40,000 and then your mortgage would be 75% or £150,000. This scheme has been available since 2013 and is for new build homes only.
How do I pay back the Equity Loan?
When you take out the agreement with the government for an equity loan you will agree upon a loan period and you can pay your loan back anytime during that specified period. The loan is interest-free for the first 5 years in England and Wales and entirely interest-free in Scotland. When you reach 6 years in the scheme, you will start to pay interest starting at 1.75% if you live in Wales or England. This interest rate will increase with the Retail Price Index plus 1%. You can also pay the government back when you come to sell. It is important to emphasise that even though The Equity Loan sounds like a shared ownership scheme, it is not. You own 100% of your home, the government is just giving you a little help.
Option 2: The Mortgage Guarantee
The Mortgage Guarantee is a newer scheme that launched in January 2014. This agreement is more between the government and the lender, as the government will guarantee up to 15% of the property value, if they give the buyer a 95% mortgage. So if you default on your mortgage payment then the government will guarantee the lender 15%. This is called a Loan-to-Value mortgage. This lets a buyer put the minimum deposit down on a home so long as they can secure the deal with a participating mortgage lender. This scheme can be used for both new build and existing homes.
What is the maximum property value?
This is where the scheme has regional differences. There is a different limit on the maximum property value for each region in the United Kingdom. The maximum in Wales is £300,000, the maximum in Scotland is £400,000 and the maximum in England is £600,000.
What are the rules?
- You have to contribute at least a 5% deposit.
- Depending on which scheme you choose, there are some rules in place regarding the types of home you can apply for a mortgage on and so on. For the equity loan you can only apply for a loan for a new build. For the mortgage guarantee scheme, you can apply for the scheme with a pre-owned home or a new build.
- Buy-to-let homes and second homes are not eligible for either scheme.
- It is worth noting that the Help to Buy scheme is open to anyone. You don’t have to be a first-time buyer.
Why join the scheme?
If you decide to get on the property ladder yourself or you decide you want to climb the ladder and you don’t use this scheme, then you will have to save up a lot more money before you can make your move.
How to apply?
You need to do some research into which properties are available in your area as apart of the scheme. Watch this useful video about the scheme from Barratt Homes, one of the property development companies involved in the scheme.
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