What is Help to Buy?

Help to Buy is a government scheme aimed at those who are finding it hard to save enough money to buy their first home or move up the property ladder.

With house prices across the UK being relatively high compared to the average salary, many people struggle to save a deposit for a house or to get a mortgage that covers the cost of a property in their area.

Unfortunately, the Help to Buy ISA will no longer be available for new applicants after 30th November 2019. It will, however, be replaced by the Lifetime ISA (LISA), a similar scheme that allows applicants to save to buy a home or for retirement.

How does Help to Buy work?

There are two parts to Help to Buy. You can use either a Help to Buy ISA or a Help to Buy equity loan to make buying a property a little easier. We explain both in more detail below.

  • With a Help to Buy equity loan, the government will lend you money, interest free, for a fixed period of five years. You’ll start paying interest after this initial fixed period if your loan isn’t repaid.

  • A Help to Buy ISA involves you setting up your own ISA (Investment Savings Account), which the government will then contribute to.

Keep reading for a further breakdown.

Help to Buy Equity Loan vs. Help To Buy ISA

Here's a breakdown:

Help to Buy Equity Loan

With a Help to Buy equity loan, the government lends you up to 20% of the cost of your home. This means you’ll need just a 5% deposit and a 75% mortgage (instead of the 25% deposit normally required).

The loan is interest free for the first five years, and low interest after that. Interest in year six is just 1.75%, increasing by 1%, plus inflation, after that. 

So if you can repay the loan in the first five years, you’ll never pay any interest. You can also pay off the loan at any time without penalties.

A Help to Buy equity loan is available to both first time buyers and existing homeowners, but only applies to newly built properties with a value of less than £600,000.

Help to Buy ISAs

Help to Buy ISAs aim to help first time buyers save a deposit for their home. If you open a tax-free Help to Buy ISA, the government will add a further 25% to whatever you save, up to £12,000.

This means if you save the maximum of £12,000, over five years, the government will add an additional £3,000. There are a range of Help to Buy ISAs available, so you should be able to find something that's ideal for you. (1)

Help to Buy Equity Loan

Help to Buy ISAs

With a Help to Buy equity loan, the government lends you up to 20% of the cost of your home. This means you’ll need just a 5% deposit and a 75% mortgage (instead of the 25% deposit normally required).

The loan is interest free for the first five years, and low interest after that. Interest in year six is just 1.75%, increasing by 1%, plus inflation, after that. 

So if you can repay the loan in the first five years, you’ll never pay any interest. You can also pay off the loan at any time without penalties.

A Help to Buy equity loan is available to both first time buyers and existing homeowners, but only applies to newly built properties with a value of less than £600,000.

London Help to Buy

To allow for the higher property prices in London, buyers in the capital can get a Help to Buy equity loan of up to 40% of the value of the property – also interest free for the first five years.

Help to Buy shared ownership

Shared ownership is a scheme under the Help to Buy initiative, that lets you buy a share in your home if you can’t afford a mortgage on 100% of a property.

Help to Buy mortgages

You will, of course, need to arrange a mortgage for the portion of your home not covered by your deposit or equity loan. Many - though not all lenders - offer Help to Buy mortgages.

Let your lender know you’ll be using the Help to Buy scheme to buy your home, and they’ll help you find the right mortgage for your circumstances.

Am I eligible for Help to Buy?

Equity loans are available to first time buyers and existing homeowners who want to buy a new-build home that costs less than £600,000. 

This scheme is only available if you live in England, but there are similar schemes available in Scotland, Wales and Northern Ireland.

You won’t be able to sublet your home or enter a part exchange deal on your old home. You also can’t own any other property at the time you buy your new home with a Help to Buy equity loan.

You’ll only be eligible for a Help to Buy ISA if you’re a first time buyer and don’t own a home anywhere else in the world. You’ll also need to be a UK resident, with a valid National Insurance Number, and you can’t have another active cash ISA alongside your Help to Buy ISA. (2)

To qualify for the government bonus on your Help to Buy ISA, your property must be:

  • In the UK

  • Up to £250,000 to purchase (outside of London), or

  • Up to £450,000 to purchase (in London)

  • Your only home

  • A property you intend to live in

  • Purchased using a mortgage

You can use a Help to Buy ISA in combination with a Help to Buy equity loan, as long as you meet all the criteria for both schemes.

Is Help to Buy worth it?

Many property buyers wonder whether Help to Buy schemes are worth the trouble. As with any scheme or loan, there are benefits and drawbacks. Here are a few of the pros and cons of Help to Buy.

Using Help to Buy calculators

Help to Buy calculators can help you work out whether you can afford to buy a home through a Help to Buy scheme. You’ll have to answer a few questions, such as where you’re looking for a home (in or out of London), your annual income, and what price your property is.

The calculator will estimate how much you can borrow, but it’s important to remember that Help to Buy calculators don’t look at things such as your outgoings, or other debts you may have. These are things you’d have to consider to work out if you can afford your repayments on your mortgage and equity loan.

Using a Help to Buy calculator is a great first step, as it will give you an idea of what you can afford, given your deposit, income, and potential Help to Buy loan.

Help to Buy (Wales)

In Wales, the Help To Buy scheme allows first-time buyers to buy a new-build home for up to £300,000 with as little as 5% deposit.

The government will loan you up to 20% of the purchase price (interest-free for five years), and you’ll need to take out a mortgage on the rest.

After the first five years, you’ll be charged 1.75% interest on the loan. This will then increase by 1% plus any increase in the Retail Prices Index each year. There’s also a monthly £1 admin fee to pay.

You’ll have 25 years to pay off the loan in chunks (known as stair-casing) or all in one go. Because the loan is based on a percentage of equity (say, 20%) you could end up paying back more than you borrowed if the value of your home increases.

Who's eligible?

The Welsh Government has set its own criteria you’ll need to meet to qualify for this scheme:

  • You must be buying your first home

  • The purchase price must be less than £300,000

  • The home must be purchased from a builder who’s registered with the scheme

  • A deposit of at least 5% will need to be put down

  • The deposit and mortgage must make up at least 80% of the purchase price

  • The mortgage must be secured from a qualifying lender

  • You won’t be able to sublet any part of your home

Further details on the scheme can be found on the Welsh Government website.

Further resources

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Your home could be repossessed if you don't keep up repayments on your mortgage.

You may have to pay an early repayment charge to your existing lender if you remortgage.

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Sources

The information on this page was sourced from HelpToBuy.gov unless otherwise stated below.