Help to Buy Mortgages

The Government's Help to Buy Scheme was first launched in April 2013. It aims to help borrowers secure a 95% loan-to-value (LTV) mortgage on a new build property. 

The English Help to Buy equity loan involves the Government lending you up to 20% of the value of a new build home outside of London and up to 40% in London. There are similar schemes available in Scotland, Wales and Northern Ireland, but there may be differences in how these schemes work. You will need to have saved at least 5% of the property value as a deposit to qualify for a Help to Buy equity loan. You can then use this deposit of at least 25% to access a range of Help to Buy mortgages from participating lenders for the remaining 75% of the cost of your new home.

It is important to note that Help to Buy equity loans can only be taken out for new build properties up to £600,000 and cannot be used to help with the purchase of older properties, and it must be your only residence.

This scheme is open to both first-time buyers and those who already have a mortgage but would like to move to a new build property (within the constraints given above). Loans can be applied for in joint names, just as per a normal mortgage.

Successful applicants pay nothing on the sum lent to them by the Government for the first five years. After this time, you will pay interest on the loan of 1.75%. This rate then increases each year by the RPI (Retail Price Index – a measure of inflation) plus 1%and continues until you repay the loan in full. From the start of the loan, you will pay a monthly management fee of £1 until the loan is repaid.

It’s important here to stress that the money you pay to the Government at the start of year six and beyond is for the interest on your loan only. The capital amount (i.e. the sum you borrowed from the Government) will not decrease and remains outstanding.

Let’s say that you took out a Help to Buy equity loan for a new build property worth £200,000. The Government would expect you to contribute 5% of the mortgage price (5% of £200,000 = £10,000) leaving £190,000 to finance.

For those outside of London, the maximum Government loan is 20% of the property price. In this case, 20% of £200,000 = £40,000.

You would then get a mortgage for the remaining £150,000 (£200,000 less your deposit of £10,000 and the Government’s equity loan of £40,000).

For those living in London, you can increase the equity loan to 40% of the property’s value.

The equity loan must be repaid either after a maximum of 25 years, or earlier if you sell the property. An important point to note is that the value of the Government’s equity loan is tied to the property value, not the initial amount you borrowed. This means that if property prices have increased since you took out the equity loan then you will need to pay more back, likewise if house prices have dropped, you’ll repay less (subject to interest and fees).

You can repay the loan in full or in part at any time. However, if you choose to pay it off in parts, then these must be a minimum of 10% of the value of the loan.

If no part repayments have been made, at the point you are ready to pay back your Help to Buy equity loan you will need to pay 20% of your property’s current value – not the amount you initially borrowed. In addition, you will need to pay back interest and charges.

If the house price has increased:

Let’s say you originally purchased your house for £200,000 and this has now increased in value to £250,000. If you borrowed the full (outside of London) amount of 20% then you will now have to pay back £50,000 – even though the Government only lent, you £40,000 originally (20% of £250,000 = £50,000).

If the price of your home has gone down:

If your £200,000 house is now only worth £175,000 then the amount you must pay back likewise goes down. In this example, you had borrowed 20% from the Government and would therefore repay 20% of £175,000 = £35,000, even though your original loan was for £40,000.

You can apply for a Help to Buy mortgage directly with the following lenders:

• Accord
• Aldermore
• Bank of Ireland UK
• Barclays
• Chorley Building Society
• Cumberland Building Society
• Halifax
• Leeds Building Society
• Leek Building Society
• Lloyds Bank
• Mansfield Building Society
• Monmouthshire Building Society
• Nationwide Building Society
• NatWest
• Newcastle Building Society
• Newbury Building Society
• Royal Bank of Scotland
• Santander
• Skipton Building Society
• Teachers Building Society
• The Melton Building Society
• The Mortgage Lender
• TSB
• Vida Homeloans
• West Brom Building Society

Registered builders and developers will advertise if their properties are available under the Help to Buy scheme.

If you want to buy a home through the Help to Buy Equity Loan scheme, you must either contact a Help to Buy agent in the area you want to live in or contact a participating house builder. To find an agent in your local area, visit the Government website.

The current version of the Help to Buy scheme is due to expire in March 2021, with a replacement set to run for two years after that. So what’s changing?

One of the biggest changes is that, from 1 April 2021, the scheme will only be available to first-time buyers, with home-movers no longer eligible for this kind of support. The new scheme will also be subject to different property price caps depending on which area of England the property is located in, rather than a blanket maximum of £600,000.

The price caps are fixed at 1.5 times the average first-time buyer house price in the region, and are set as:

The amount of interest you’ll pay back after the initial five-year interest-free period is also changing, with it set to start at 1.75% before rising in April each year by the Consumer Prices Index (CPI) plus 2%, rather than the current method of the Retail Prices Index (RPI) plus 1%. First-time buyers wanting to use the Help to Buy: Equity Loan (2021-2023) scheme can reserve their new home from 16 December 2020, but they cannot move in until 1 April 2021.

You can enjoy tax-free saving for your first home using a lifetime ISA.

This is the Government scheme that covers people living in England and allows you to buy a new build property with a 5% deposit and up to an additional 20% loan outside of London, and up to 40% in London from the Government.

London Help to Buy

With London house prices reaching much higher levels than most other places in the UK, there is a special scheme in place for people looking to buy their first home in the capital. Under this extension of the main scheme, first-time buyers can qualify for a 40% interest-free equity loan, which is backed by the UK Government.

Armed Forces Help to Buy

Designed specifically for people serving in the armed forces, this is a special Help to Buy scheme. Just as with the ordinary Help to Buy scheme, armed forces personnel can get a favourable, interest-free loan, backed by the UK Government to help towards a home deposit and costs.

Rent to Own - Wales

People living in Wales who do not have enough saved for a deposit on a new house are covered by this scheme, which allows them to rent a home that they can buy at a later date. The future mortgage deposit is subsidised by the rent that person pays. This is not specifically covered within this guide.

Help to Buy in Scotland, Wales and Northern Ireland

People in Scotland are covered by the Help to Buy (Scotland), where the maximum Government loan is 15%, while Northern has the Ireland Co-ownership scheme. Borrowers in Wales are covered by the Help to Buy (Wales) scheme.

Other Help to Buy schemes

There are several other schemes all aimed at helping people to own at least a share in their own home. These include Starter Homes, Social HomeBuy and Help to Buy - Shared ownership.

Interested in discussing your options? Why not speak to a mortgage broker. Alternatively, find exactly what you are looking for on our mortgage comparison charts.