The government launched the help to buy scheme in 2013 with the idea of making it easier for hardworking people with small deposits to get on the property ladder.
The scheme is now only available to first time buyers, helping them take their first step on to the property ladder.
How does it work?
Pro’s
The equity loan scheme allows you to borrow a maximum of 20% of the purchase price of the property in the form of a help to buy loan. You need to have your own deposit (a minimum of 5%) available to be eligible for the scheme. Should you have a larger than 5% deposit available, this can be used if you wish, however the maximum deposit you can put in alongside the 20% equity loan is 55%, giving you a total of 75%. Help to buy London works in the same way but the maximum loan is higher at 40%.
One of the main benefits of the scheme is that it provides you with a much larger deposit than you might ever be able to raise yourself. This allows you to be eligible for lower 75% loan to value rates, as opposed to much higher 95% LTV rates if you were only able to put down your 5% personal deposit.
The loan is interest free for the first 5 years. In the sixth year, you will be charged 1.75% of the loans value. The loan increases each year at 1% above the retail price index (RPI) and repayments are due monthly.
Example:
Con’s
It is important to remember that the loan will not decrease in size unless you opt to repay part of it early, which means that over time, the cost of the admin fee along with rate increases could become expensive, especially if inflation rises.
These costs will need to be paid in addition to your mortgage repayments, so you need to be sure they are affordable based on your income. Ideally, the loan should be repaid within 5 years to avoid interest costs.The following conditions apply:
- Only available to first time buyers
- Property must be a new build
- Property value no higher than £600,000
- You must intend to live in the property (not eligible for second homes or buy to lets)
- You must meet the loan schemes affordability assessment
- The loan must be repaid within 25 years
How to apply?
The first step is to contact your local help to buy agent to check you are eligible and confirm the terms of the loan. This link, will take you to the local help to buy website where you can find more information about the scheme, including your local agents contact details.
If you are accepted for the scheme, you will be issued with an authority to proceed form (ATP) at which point a full mortgage application can be completed. Your chosen mortgage adviser will require a copy of this.Repaying the loan
Be aware that the loan is an equity share in your property, not a fixed loan amount. As an example, if you took the full 20% loan, you will owe 20% of the current value of your house.
The loan can be repaid at any time, in full or part. For many, this is often repaid on the first remortgage. However, if you aren’t in a position to repay the loan or you don’t want to, there are plenty of lenders that will allow a re-mortgage, whilst keeping the equity loan in place.
Once the loan is repaid, you will be released from the terms of the help to buy scheme.How can we help?
Everystep Financial are experts in help to buy mortgages. Our independent specialists can help you find the most suitable mortgage for your new home. We don’t charge broker fees on standard residential mortgages with no adverse credit (unlike some Advisers you might find on new build sites). And we are here to guide you through the process EveryStepof the way.
Please contact the office on 01934 51533 if you would like more information or to book a free initial, no obligation consultation.