Everything You Need to Know About the Help to Buy Scheme
Most first time buyers can use some financial help when buying a home. For first time buyers interested in buying newly built homes, the government has introduced the Help to Buy equity Loan scheme – an affordable home ownership scheme that brings you one step closer to owning your ideal home.
Read on to learn more about the Help to Buy Scheme, how you can apply, and its main benefits.
What you can find in this article:
Everything You Need to Know About the Help to Buy Scheme
What Is the Help to Buy Scheme?
Who Is Eligible for the Help to Buy Scheme?
What Type of Home Can You Buy Through the Scheme?
How Does the Help to Buy Scheme Work?
- Home to Buy Scheme Stages
- Interest
- Fees
- How Long Does It Take to Buy a New Home Through Help to Buy?
- Repaying Your Loan
Our experienced London estate agents at REMAX Star Canning Town are always available to support home buyers in finding not only the right home but also the right financing option. If you are interested in buying a new home, our team can assist you in making the best choice for your needs and budget, guiding you through the rules and regulations applicable to government affordable home ownership schemes. To learn more about how we can help, contact us at 0207 055 0441 or book an appointment to see us.
What Is the Help to Buy Scheme?
Help to Buy is an affordable home ownership scheme developed by the government through the Homes and Communities Agency (aka Homes England).
Through this scheme, first time buyers can benefit from equity loans that they can use to purchase a new build home.
The following types of properties are considered new builds for the purposes of the Home to Buy scheme:
- newly built homes
- converted commercial spaces or spaces that have not been used as homes before
- homes that have never been lived in
- homes provided through a homebuilder registered with the Help to Buy scheme
In short, the scheme allows eligible first time buyers to borrow up to 20% of the market value of the new build, or 40% for London, to gain easier access onto the property ladder.
The market value considered for the purposes of the Help to Buy scheme is the highest of the following:
- the sale price of the home
- the value determined by the Royal Institution of Chartered Surveyors (RICS)
For the duration of the loan, first time buyers only pay interest on the borrowed amount. However, they have the option of repaying the loan at any time and will have to do so if they sell the home.
Who Is Eligible for the Help to Buy Scheme?
To qualify for an equity loan, home buyers must meet the following criteria:
- they must be aged 18 or over
- they must be a first-time buyer
- they must be able to afford the related fees and interest payments
The following buyers do not qualify for an equity loan under the Help to Buy scheme:
- buyers who have owned a residential property or land in the UK or abroad before
- buyers who have had a Sharia mortgage
Buyers who are married, cohabitating with a partner, or in a civil partnership can make a joint application.
Eligible Home to Buy applicants cannot sublet the property without permission, must have building insurance for the home, and keep it in a good state of repair.
What Type of Home Can You Buy Through the Scheme?
The following criteria apply to properties you can acquire through the Help to Buy scheme:
- the home must be the only home you’ve ever owned
- you must live in the home you buy through the scheme
- the home must be a new build (never lived in before)
- it must be sold by a registered homebuilder
Purchase Price Limits
Depending on where the home you intend to buy is located, it must have a market value below a certain threshold, as follows:
| Region | Property purchase price limit |
|---|---|
| North East | £186,100 |
| North West | £224,400 |
| Yorkshire and the Humber | £228,100 |
| East Midlands | £261,900 |
| West Midlands | £255,600 |
| East of England | £407,400 |
| London | £600,000 |
| South East | £437,600 |
| South West | £349,000 |
How Does the Help to Buy Scheme Work?
To qualify for an equity loan based on the Help to Buy scheme, you must be able to pay a deposit of at least 5% of the property purchase price. You can then use a repayment mortgage to cover a minimum of 25% of the property purchase price and use the equity loan to cover between 5% and 20% of the property purchase price (or up to 40% for London properties).
Your interest and loan repayments are calculated based on the equity loan percentage you borrow.
For example, if you buy a home with a purchase price of £400,000 and borrow 20% (£80,000), then your interest and repayments are calculated based on the equity loan percentage, namely 20%.
Home to Buy Scheme Stages
Stage 1: Finding a Home and Applying
You can find your ideal home by searching online or enlisting the help of an experienced estate agent. Make sure your search is focused on properties sold by Help to Buy registered homebuilders. Otherwise, you won’t be eligible for Help to Buy.
You will need to formally reserve the property of your choice. Most homebuilders will allow you to reserve the property for a small fee (typically up to £500) until you proceed with the equity loan application. The homebuilder will return this amount to you if your Help to Buy application is approved.
Next, you must submit your application for the scheme. It will be checked by a Help to Buy agent who will calculate your monthly outgoings compared to your monthly income to confirm that you are able to cover the required payments.
If you are confirmed as eligible, you must fill in a Property Information Form and provide details of the property and your financial information.
At this stage, you must be able to cover the following payments:
- the £500 homebuilder reservation fee
- the 5% deposit
- mortgage fees
- legal fees
- stamp duty
Stage 2: Approval
Once you get approved, you will be given Authority to Proceed, an official document attesting that you are eligible for the Help to Buy scheme that is valid for 3 months. Based on this document, your conveyancer will guide you through the forms you must fill in.
Next, you must apply for the repayment mortgage that should ideally be under 4.5 times your annual income before tax and then submit your full application to the Help to Buy agent.
Stage 3: Exchange of Contracts
At this stage, you will be ready to sign the sale contract and the equity loan contract after paying the 5% deposit.
Your conveyancer and the Help to Buy agent will help you check that all information comprised in the contracts is correct and approve the exchange of contracts.
Stage 4: Completion
At this stage, the following amounts must be paid:
- You will pay the remaining amount of your deposit (if it exceeds 5%)
- Your lender will pay the full amount of the repayment mortgage to the homebuilder
- The government pays the equity loan to the homebuilder
Once all these stages are complete, you are the legal owner of your new home, and you can move in.
Interest
For the first 5 years after you access the Help to Buy scheme, you will not owe any interest. Starting with the 6th year, you will pay interest at a rate of 1.75% per year.
This interest rate applies to the equity loan amount you initially borrowed and is paid in monthly installments.
Every year in April, the interest rate will increase by adding the Consumer Price Index (CPI) plus 2%. The interest rate will decrease if you make partial repayments of the equity loan.
Fees
The management fee for the Help to Buy equity loan is £1/month until you pay off the loan.
The other fees you will have to pay are:
- Administration fees if you change your equity loan
- Mortgage fees
- Legal fees
- Market value reports
How Long Does It Take to Buy a New Home Through Help to Buy?
After you get the Authority to Proceed, you must exchange contracts within 3 months. The sale must be completed within 6 months of the contract exchange.
Repaying Your Equity Loan
You must repay your Help to Buy equity loan by the end of the loan term together with the related interest and management fees.
You will also have to pay off your loan if you sell the home, breach the equity loan contract, or repay the mortgage.
You can make partial or full repayments at any time during the loan term.
Help to Buy was introduced by the government as a way to help first time home buyers access the property ladder. It is one of the several affordable home ownership schemes that aim to give buyers access to reasonably priced homes in England.
If you are a first time home buyer, our experienced estate agents at Remax Star Canning Town have the market knowledge to assist you in finding the right home and choosing the financing option that is right for you.
To learn more about Help to Buy and other affordable home ownership schemes, contact us at 0207 055 0441.
