How Does Help To Buy Work ?
What is the Help to Buy scheme?
In the UK, navigating the path to homeownership can feel like tackling a complex maze. Enter the Help to Buy scheme, a government-backed initiative offering a helping hand, or rather, a financial boost, to first-time buyers. But with multiple branches and variations within the scheme, understanding its intricacies can be daunting. Fear not! Buckle up as we delve into the world of Help to Buy, exploring its different forms, eligibility requirements, potential benefits, and drawbacks, equipping you with the knowledge to navigate this housing scheme and potentially unlock your dream of owning a home.
What is the Help to Buy Equity Loan?
The Help to Buy Equity Loan was a government scheme in England that helped people buy new-build homes by providing a loan for up to 20% (40% in London) of the purchase price. This meant buyers needed a smaller mortgage, making monthly payments more affordable.
Here’s how it worked:
- You bought a new-build home worth up to the regional price cap.
- The government lent you 5-20% (or 40% in London) of the price.
- You paid a 75-85% (60% in London) mortgage for the rest.
- You didn’t pay interest on the government loan for the first 5 years.
- After 5 years, interest started accruing based on inflation + 2%.
- You could repay the loan anytime without penalty.
Important note: This scheme closed for new applications in England on October 31, 2022. However, it’s still available in Wales.
Who can get the Help to Buy Equity Loan?
The Help to Buy Equity Loan, while now closed in England, had some specific requirements for who could snag it:
First-time buyers only: This one’s a dealbreaker. You couldn’t have owned any property before, anywhere in the world, to qualify.
New builds only: Shiny and fresh, straight from the builder. Existing properties weren’t eligible, even if never lived in.
Income limits: Your household income couldn’t exceed £80,000 per year in most areas, and £90,000 in London.
Minimum deposit: You still needed some skin in the game, with a minimum deposit of 5% (except in London, where it was 10%).
Property price caps: The house couldn’t be a mansion, with regional price limits in place to ensure affordability. For example, in London, the cap was £600,000.
How does the Help to Buy Equity Loan work?
Imagine you’re a first-time buyer eyeing a shiny new-build home in England (sorry, Wales still has it!). You’re excited, but that deposit feels like a mountain. Enter the Help to Buy Equity Loan, your friendly government loan shark (not really, but kinda!).
Here’s how it worked:
- You pick your new-build dream:Make sure it’s under the regional price cap (think cozy cottage, not Buckingham Palace).
- The government gives you a hand:They lend you 20% (or 40% in fancy London) of the purchase price as an equity loan.
- You grab a smaller mortgage:With the government’s chunk, you only need a 75-85% mortgage (60% in London). Smaller mortgage means smaller monthly payments, woohoo!
- Chill for five years:The best part! You don’t pay any interest on the government loan for the first five years. Just enjoy your new digs.
- Reality bites (gently):After five years, interest starts accruing on the loan, based on inflation plus a 2% bonus. Think of it as a thank-you fee to the government.
- You’re in control:You can repay the loan anytime without penalty, whether you sell the house or just want to get rid of the debt.
How much can I borrow with Help to Buy?
The amount you could borrow with Help to Buy depended on several factors, as it wasn’t a fixed loan amount but rather a percentage of the property price:
Loan percentage:
- England:You could borrow up to 20% of the purchase price of the new-build home.
- Wales:The loan percentage remained at 20% for most areas, but it increased to 40% in specific designated areas.
Regional price caps:
Maximum property price limits were set for each region in England and Wales, ensuring the borrowed amount remained within reasonable bounds. For example, the price cap in London was £600,000, meaning the maximum loan you could get was £240,000 (40% of £600,000).
How much deposit do I need for Help to buy?
The deposit amount you needed for the Help to Buy Equity Loan depended on where you were planning to buy the property:
England:
- Minimum deposit:5% of the purchase price.
Wales:
- Most areas:Minimum deposit of 5% of the purchase price.
- Designated areas with 40% loan:Minimum deposit of 10% of the purchase price.
Can you get the Help to Buy Equity Loan on old houses?
No, you couldn’t get the Help to Buy Equity Loan on old houses. The scheme was specifically designed for new-build properties only. This meant several key restrictions:
- Property type: Only newly constructed homes, directly from builders, were eligible. Existing houses, even if never lived in, weren’t accepted.
- Age of the property: The scheme aimed to incentivize the purchase of newly built homes to boost the construction industry. Therefore, any property considered “old” (generally anything not brand new) was excluded.
How to apply for Help to Buy Equity Loan:
If you’re interested in understanding the application process for future reference or because you’re considering the scheme in Wales (where it’s still active), here’s a breakdown of the steps involved:
- Eligibility check:
- Ensure you meet the criteria, including being a first-time buyer, purchasing a new-build property within the regional price cap, and having a household income below the specified limits.
- Choose a participating lender:
- Not all lenders offer the Help to Buy Equity Loan. Research and compare options based on interest rates, fees, and overall service.
- Get a mortgage pre-approval:
- Having a pre-approval demonstrates your financial ability to borrow and strengthens your application.
- Find a suitable new-build property:
- Search for eligible properties within your budget and regional price cap.
- Submit your application:
- Contact your chosen lender to initiate the application process. This typically involves providing personal and financial information, property details, and supporting documents.
- Valuation and legal checks:
- The lender will arrange a property valuation and conduct legal checks to confirm everything is in order.
- Completion and loan drawdown:
- Once approved, you can purchase the property and receive the loan from the government and your mortgage lender.
