Help to Buy Specialists
Help to Buy mortgages incorporated four separate schemes when they were announced in the 2013 budget, intended by the government to help first time buyers and home movers afford to buy new homes in the current economic climate and housing market. The four initiatives that made up Help to Buy were:
- Equity loans
- Shared Ownership
- New buy
- The mortgage guarantee.
Help to Buy: Equity Loan mortgage
Help to Buy Equity Loans
Help to Buy equity loans are only available in England, although similar schemes have been made available by the Scottish Government, the Welsh Government and the Northern Ireland Housing Executive. Equity loans are open to people who want to buy a new-build property, and who have a 5% deposit available. The government will top up your deposit with an equity loan of up to 20% of the property value (maximum £120,000) – in this case, you would take out a 75% mortgage from a lender to buy the property. For buyers in London only, the maximum equity loan is 40% of the property value, up to £240,000. The maximum full purchase price is £600,000 in both London and the rest of England.
Once everything is up and running, you will make monthly payments to the mortgage lender as normal, but when it comes to the equity loan no interest is charged or regular repayments required – other than a £1 monthly management fee collected by Direct Debit – for the first five years. After five years, an interest rate of 1.75% is charged; in subsequent years, the interest fee increases by inflation (measured as the percentage increase in the retail price index) plus 1%. You can either repay the loan in stages (in minimum 10% increments) at any time, or pay it off when you sell the property; the maximum repayment term for the Governments equity loan element is 25 years.
It is important to be aware that when you repay an equity loan, the repayment amount is based on the value of your property at that time, not the original loan amount. For example, let’s say you were buying a property for £200,000. You have a £10,000 deposit (5%), take out an equity loan for £40,000 (20%) and take a mortgage for £150,000 (75%) to complete the purchase. If you sell the property in 10 years’ time and the value has risen to £300,000, then you would need to repay £60,000 (20% of the property’s sale value) to the equity loan. Your share of the sale proceeds would be £240,000 (80% of the sale value) from which you would repay any outstanding mortgage balance.
Help to Buy: Equity Loan topics
The Help to Buy scheme was introduced by the Government in 2013 and since this time has helped thousands of people realise the reality of owning their own home however, where do you start in regard to getting a Help to Buy mortgage. Firstly, not all lenders participate in the Help to Buy scheme so you need to find out who does, and those that are involved offer specific products outside their usual mortgage schemes.
As with all residential mortgages, the amount you need to borrow has to be assessed as affordable by the lender but for a help to buy mortgage, this also needs to be checked by the Help to Buy agent. In general terms applying for a mortgage for a help to buy purchase is the same as any other however, you just need to ensure that both parties have agreed the loan amount based on affordability. A good broker will assist you in your journey and also offer to complete the help to buy agents application with you.
If you are interested in the Governments Help to Buy scheme you will need to know a few minimal basics to check if you qualify.
- Available to First Time Buyers and Homeowners looking to move
- The property being purchased must be a new build and no more than £600,000.00
- You cannot sublet the property nor participate in a part exchange for your current home
- You must not own any other property at the time you own your new home
- The scheme is available in England only. Scotland, Wales and Northern Ireland run their own similar schemes
- You will need a minimum 5% cash deposit
Although the criteria remains the same for those looking to purchase in London, due to the current property prices in Greater London the upper limit for the equity loan in this area has been increased from 20% to 40%.
This covers the basics but do ensure you get all the required information in relation to how the scheme works before making a commitment. More can be found on the Governments Help to Buy website or please speak to a help to buy mortgage broker such as ourselves.
The Governments help to Buy scheme could help you purchase your new home as a first time buyer or as a home mover needing to move on to their next property however, what is the Help to Buy process and where do you start.
Check your eligibility first. The scheme is fairly basic in its criteria but do ensure you meet the minimum requirements first. These can be found on our site or from the Governments Help to Buy website.
If happy you fulfil the basic eligibility you will now need to check on your budget. This will, in the most part, be determined by the amount of mortgage you can obtain albeit there is a maximum purchase price that applies of £600,000. In addition to checking how much you can borrow from a lender you will also need to have this checked by the help to buy agent for your area. This can be done initially by completing the help to buy calculator.
Finally, once satisfied that the scheme is the right thing for you and the numbers involved are attainable, you can now start to look for your new home.
Although equity loans and shared ownership are the only schemes currently branded under the Help to Buy umbrella, they are not the only affordable home ownership schemes out there. Other examples include:
- Starter Homes – At the time of writing this scheme has not yet properly launched, but you can register your interest for more information. Starter Homes is designed to allow first-time buyers under 40 to buy a new-build property at just 80% of the market value. The maximum cost of a home offered via the Starter Homes scheme will be £250,000 outside London, and £450,000 in London.
- Social HomeBuy – This is similar to the Help to Buy shared ownership scheme, and is offered by some (not all) local authorities and housing associations. This scheme gives those who have been in social housing for at least five years the opportunity to purchase a share (minimum of 25%) of the property. You get a discounted price (between £9,000 and £16,000) on the share of the property that you purchase, and pay subsidised rent on the rest.
When looking into your Help to Buy: Equity Loan mortgage you will discover that not all lenders participate in the scheme. Those that do will also offer a specific portfolio of rates that will differ to that of their standard mortgages. The good news however, is that typically the rate you will be offered will be priced not solely on the cash deposit you have to put down (usually the minimum 5%) but also inclusive of the equity loan. The lower the loan to value, commonly referred to as LTV, the lower the interest rate and as such Help to Buy mortgage rates are much more aligned with those who have a 25% deposit to put down.
In general terms the rates offered for help to buy mortgages are priced in the same way as a standard mortgage. You will usually be offered a selection of products with some incurring higher fees than others and some offering benefits such as free property valuation and cashbacks. It is therefore important that you decide upon the best to suit your personal circumstances and loan amount.
There can be many advantages in purchasing a newly built property over an older home; a modern property with brand-new fixtures and fittings, often much more energy efficient than older houses, and usually with smoke and burglar alarms fitted. Add to this the avoidance of the dreaded “property chain”, and the sometimes generous incentives offered by property developers, and it can be an attractive proposition.
The currently available Help to Buy schemes – equity loans and Shared Ownership are designed to help homebuyers save up for a deposit – make it easier than it has been in years to purchase a modern, newly built home. Also check out the ‘Affordable home ownership schemes’ section for details of another scheme designed to help buy a new property: Starter Homes.
Recent changes to the Help to Buy scheme have made it more accessible to customers with a less than perfect credit history. People can now be accepted for Help to Buy mortgages if:
- They are one year discharged from a bankruptcy.
- They have a current IVA.
- They have no mortgage arrears in the past 12 months (previous arrears are accepted).
In such cases, customers will need to put down a 10% deposit on the property they are looking to buy, rather than the typical 5%.
Finding the right mortgage can seem a daunting exercise at the best of times however, this can be even more so when you are looking to purchase your home using the Government’s Help to Buy scheme. Not all lenders participate in the scheme and with each also having their own individual criteria in how they assess you as an applicant, the job of securing the right mortgage can still feel like working through a minefield.
Our expert Help to Buy mortgage advisers are fully qualified and will know where to look in regard to lenders that are applicable to your individual circumstances and offer you guidance right the way through the whole process including assistance with your help to buy application where needed. Get in contact with us today to discover which Help to Buy mortgage lenders may be available to you.
The various Help to Buy schemes have and will continue to represent a step forward in promoting affordable home ownership. However, to ensure you find the scheme or mortgage which presents the right option for you, speak to one of our expert mortgage brokers today.
At Just Mortgage Brokers we specialise in Help to Buy and similar schemes, and have helped many would-be homeowners get on the property ladder. We can provide expert, impartial advice on home-mover and first-time buyer mortgages and remortgages.
When does Help to Buy end?
The current Help to Buy shared equity scheme expires in March 2023. This date however is not the only date you need to know. Whilst the scheme does indeed finish at this time, this is the date for you to have completed on your purchase not the date that you can apply. The date for applying, that includes reserving your property, has recently been reviewed by the government and that date has been brought forward to 31 October 2022. Therefore if you are considering the scheme don’t delay and speak to one of our help to buy advisers.
Is Help to Buy worth it?
Knowing if the Help to Buy shared equity scheme is worth it really depends on what your definition of this is. The scheme has help thousands of homeowners purchase a property when they otherwise perhaps would never have been able to do so. As with any scheme there will be pros and cons and as such we strongly recommend that you get the full details of how it works before making any decisions. Ultimately any form of homeownership comes with its risks but by being well informed you will hopefully be better equipped to make any decisions.
Is Help to Buy only for new builds?
Help to buy is only available for new builds and can only be offered by those developers who participate in the scheme. Many developers will have their designated mortgage advisers who they will look to refer you on to for your advice however it is not compulsory to use these and you are free to use whoever you wish. Do make sure the mortgage adviser is registered for the Help to Buy shared equity scheme and that they have the knowledge to deal with this. Feel rest assured that here at Just Mortgage Brokers we are able to deal with all Help to Buy mortgage enquires.
How do I repay my Help to Buy Loan?
If you are considering paying off your help to buy shared equity loan and need to raise these finds via a mortgage you will need to establish if this is possible. Such things as affordability and your credit rating will be relevant. It would be a good if you have a rough idea as to how much your property is worth as the amount of the equity loan to be repaid will be calculated on this. If you go ahead you will need this done professionally however an educated guess should do to begin your research. If you look to proceed you will then need to contact the organisation who you have the equity loan with to start the process. You’ll also need a solicitor.
Can you remortgage with Help to Buy?
Whilst your equity loan terms are set for the entire lifetime of the loan and the provider can not be changed, you can indeed still look to change your mortgage via a remortgage. You may be considering a remortgage due to your scheme expiring such as a fixed rate or possibly to raise the funds to repay the equity loan itself in part or full. The options tend to be more limited as not all lenders participate in the Help to Buy scheme however it is always advisable to assess your options throughout your mortgage term.
Can you rent out a Help to Buy Property?
Government guidelines state that you are only allowed to sublet your help to buy property if your personal circumstances make it difficult to live there. The specific personal circumstances they quote are:
- If you need to move temporarily
- If you are struggling financially
- If your property is affected by unsafe cladding
If renting is purely through your own choice as an investment, then you could consider repaying the equity loan to enable you to do so. Our advisers are familiar with this type of enquiry and can discuss your possible options to see if it is a viable course of action you can take.