Representative Example: £150,000 mortgage over 25 years initially at 4.34% fixed for 62 months reverting to 3.74% variable for term. 62 monthly payments of £820.18 and 238 monthly payments of £778.84. Total amount payable £237,260.08 includes loan amount, interest of £86,215, valuation fees of £0 and product fees of £995. The overall cost for comparison is 4.1% APRC representative.
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The Help to Buy scheme is a Government initiative aimed at helping more people get on, or move up, the housing ladder. It makes it possible to buy a home with a deposit of just 5%, helping reduce one of the biggest barriers to homeownership – building up a big enough deposit in the first place.
The scheme is open to first-time buyers as well as homemovers looking to buy a home up to the value of £600,000. Buy-to-let investors aren’t eligible, nor are those who will own any property other than their Help to Buy home. Both new-builds and existing homes can be bought using the scheme, but there are different elements to choose from depending on your needs and home-buying aspirations.
Phase one of the scheme was launched in April 2013. It’s specifically designed to help borrowers secure a mortgage on a new-build property, and works by the Government providing an equity loan (also known as a second-charge loan) of up to 20% of the property’s value, subject to the borrower having at least a 5% deposit to arrange a traditional mortgage through participating lenders.
Example of a home purchase under the Help to Buy equity loan scheme:
For the first five years you won't have to pay anything on the 20% equity loan that the Government provides, but you’ll still need to repay the mortgage. After five years, the equity loan will be subject to a fee of 1.75% per annum on the outstanding amount, and from then on the fee will rise each year in line with any increase in Retail Prices Index inflation (RPI) plus 1%.
You can choose to make voluntary repayments of the equity loan, at prevailing market value, at any time. This would mean that when you come to sell your property you won’t owe the Government anything, but if you don’t make any repayments, you’ll need to pay back the equity loan when you sell your home.
Phase two of the scheme was launched in October 2013, and aims to help borrowers with at least a 5% deposit secure a 95% loan-to-value (LTV) mortgage on a new-build or existing home up to a value of £600,000.
Under this part of the scheme, the Government offers mortgage lenders the option to purchase a guarantee of up to 15% of the value of the mortgage, reducing their risk should the borrower default and encouraging lenders to offer mortgages to those with a smaller deposit.
To qualify, borrowers will still need to pass lender affordability checks and have no history of difficulties in meeting debt payments. It must be a residential mortgage for a property you’ll live in, and the home must be in the UK and worth £600,000 or less.
This scheme is very different to the first phase of Help to Buy, as in this case the Government acts as guarantor on eligible mortgage products. Participating lenders pay the Government a fee for this guarantee, and you, as a borrower, will only have to repay the mortgage you take out, so essentially you won’t see any difference.
In order to benefit from this phase of Help to Buy, you’ll need to apply for a mortgage through a participating lender. Currently, those involved in the scheme are Aldermore, Bank of Scotland, Barclays, Halifax, HSBC, Lloyds, NatWest, Post Office Mortgages, RBS, Santander, Virgin Money and Bank of Ireland (NI only).
Our charts give you an overview of the top Help to Buy mortgages available from participating lenders to help you make your decision.
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