Help to Buy is a government scheme which can help first time home buyers get a property with just a 5% deposit. Use this guide to learn how Help to Buy schemes work, how to qualify and the different options available.
- How does Help to Buy work?
- National differences
- Help to Buy: Equity loans
- Where to go for more information
How does Help to Buy work?
Use our Mortgage calculator, to work out how much you’d pay back each month.
The Help to Buy scheme offers an equity loan where the government lends first-time buyers and existing homeowners money to buy a newly-built home.
Who can’t apply for the scheme?
- You can’t use the above schemes to buy a second home or a property to rent out.
- If you use Help to Buy, you can only take out a repayment mortgage.
- You can’t buy a property for more than the set price limits (see below).
National differences
- In England, both schemes apply to homes costing up to £600,000.
- In Northern Ireland there is a different equity loans scheme (link below).
- In Scotland the maximum threshold depends on the value of the property and when your application is completed. For example, for applications completed on or before 31 March 2017, the maximum purchase price can’t exceed £230,000.
- In Wales, both schemes apply to homes costing up to £300,000.
Help to Buy: Equity loans
How they work
- You need at least 5% of the sale price of your new-build flat or house as a deposit.
- The government lends you up to 20% of the sale price.
- You borrow the rest (up to 75%) from a mortgage lender, on a repayment basis.
Example
Cost of home - £200,000
| Cost name | Percentage of total | £ value |
|---|---|---|
| Your deposit | 5% | £10,000 |
| Equity loan | 20% | £40,000 |
| Mortgage | 75% | £150,000 |
| TOTAL | £200,000 |
The interest rate you will be charged
You don’t pay any interest or fees on the government’s equity loan for the first five years. In the sixth year, you’ll be charged 1.75%.
After then, the fee rises by inflation based on the Retail Prices Index (RPI) plus 1% each year.
RPI figures are put together by the Office for National Statistics.
See below for an example of how the fees work.
Interest rates for paying back your loan
Years 1-5: no fees
Year 6: 1.75% of the loan
Year 7 onwards: 1.75% + RPI + 1%
These fees do not go towards paying off the government loan.
When you sell your home, or the mortgage is paid off, you have to repay the equity loan plus a share of any increase in the value. It works like this:
Example
Home bought for £200,000, sold for £250,000
| Increase in value | 25% |
| Equity loan repayment | £50,000 (£40,000 + 25% profit) |
| Mortgage | £150,000 (less capital repayments) |
| Your share | at least £50,000 |
The remaining £50,000 (or more) can be used a deposit on your next home.
The exact amount depends on how much you’ve paid off your mortgage.
You can also pay back part or all of your loan at any time.
The minimum percentage you can pay back is 10% of the market value of your home.
The amount you pay will depend on the market value at the time.
How do I find an equity loan?
Speak to the Help to Buy agent in your local area or a local developer who is registered with Help to Buy.
Where to go for more information
- How much can you afford to borrow
- Estimate your overall cost of buying a house and moving
- Help to Buy
- Help to Buy in Scotland
- Help to Buy in Wales
This article is provided by the Money Advice Service.
