Help to Buy mortgages explained

The Government scheme helps those with small deposits get on or move up the property ladder. This guide sets out how it works in England, London, Scotland and Wales, how to qualify and where to find Help to Buy mortgages.

How does Help to Buy work?

Help to Buy is a Government initiative to help struggling first-time buyers with small deposits and those wanting to move up the property ladder with limited equity, buy a home.

The scheme was announced in the March 2013 Budget and was made up of two parts; the Help to Buy Equity Loan and the Help to Buy Mortgage Guarantee.

The Help to Buy Mortgage Guarantee scheme gave first-time buyers and homemovers with a small deposit a better chance of getting a mortgage and was available on both new-build and existing homes.  This scheme closed on December 31 2016.

However, the Help to Buy: Equity Loan scheme for new-build homes is still available Here’s what you need to know.

Help to Buy: equity loan in England

In England, you can obtain an equity loan mortgage on a new-build property up to a value of £600,000.

To be eligible you will need to have a deposit of 5% of the purchase price. The Government will offer you a loan worth up to 20% of the value of the property, with the remaining 75% coming via a Help to Buy mortgage.

So if the property you’ve got your eye on is worth £200,000, it will work like this:

• You’ll need a deposit of £10,000;
• The equity loan will be £40,000;
• The mortgage will therefore be £150,000.

The loan can be repaid at any time within the term of the mortgage, or on the sale of the property.

 In England, the loan is interest-free for the first five years. Then, from year six, a fee of 1.75% is charged on the loan, which rises annually by the Retail Prices Index measure of inflation plus 1%. So for the first five years you’ll only be paying interest on the mortgage.

In order to access the equity loan in England, you will need to find and reserve an eligible property being offered by a builder who is registered with a Local HomeBuy Agent. You can find your local agent through the Help to Buy England website. A reservation fee might apply.

You will then need to fill out a Property Information Form and provide details of the proposed purchase, proposed main mortgage, deposit and household income.

This will enable the Local HomeBuy Agent to perform credit and affordability checks. If you pass you will be sent an ‘Authority to Proceed’ giving you the green light to apply for a Help to Buy mortgage.

This part of the Help to Buy programme was due to close in 2016 but has now been extended until 2020.

Help to Buy: equity loan in London

If you live in London, the scheme is more generous to represent the higher cost of buying a home in the area.

In London, you can obtain an equity loan mortgage on a new-build property up to a value of £600,000.

You will need to have a deposit of 5% of the purchase price. The Government will offer you a loan worth up to 40% of the value of the property, with the remaining 55% coming via a Help to Buy mortgage.

So if the property you’ve got your eye on is worth £400,000, it will work like this:

• You’ll need a deposit of £20,000;
• The equity loan will be £160,000;
• The mortgage will therefore be £220,000.

The loan can be repaid at any time within the term of the mortgage, or on the sale of the property.

Like in the rest of England the loan is interest-free for the first five years. Then, from year six, a fee of 1.75% is charged on the loan, which rises annually by the Retail Prices Index measure of inflation plus 1%. So for the first five years you’ll only be paying interest on the mortgage.

In order to access the equity loan in London, you will need to find and reserve an eligible property being offered by a builder who is registered with a Local HomeBuy Agent. You can find your local agent through the Help to Buy London website. A reservation fee might apply.

You will then need to fill out a Property Information Form and provide details of the proposed purchase, proposed main mortgage, deposit and household income.

This will enable the Local HomeBuy Agent to perform credit and affordability checks. If you pass you will be sent an ‘Authority to Proceed’ giving you the green light to apply for a Help to Buy mortgage.

Help to Buy: equity loan in Scotland

In Scotland, you can obtain an equity loan mortgage on a new-build property up to a certain threshold that varies year on year.

The threshold prices are:

• £230,000 for purchases completed on or before 31 March 2017
• £200,000 for purchases completed on or before 31 March 2018
• £175,000 for purchases completed on or before 31 March 2019

If an application is submitted before 31 March in a year but the purchase isn't actually completed until after that date, the maximum threshold price for the year in which it's completed will apply.

You will need to have a deposit of at least 5% of the purchase price. The Scottish Government will offer you a loan worth up to 15% of the value of the property, with the remaining 80% coming via a Help to Buy mortgage.

You will need to find and reserve a property eligible for the scheme through a participating home builder (a reservation fee might apply) and then contact a lender or speak to an independent financial adviser about getting a mortgage.

You should apply for funding through the administering agent for your area. After you complete the form and send it to an agent, they'll assess your application and let you know if you're eligible for assistance through the scheme.

If the agent assesses that your application is eligible, they'll send you an 'Authority to Proceed' (ATP), which confirms your eligibility and lets you go ahead with the purchase.

The loan can be repaid at any time within the term of the mortgage, or on the sale of the property.

The equity loan is interest free in Scotland, although you may have to repay more than you borrowed if the value of your home increases.

Check out the Help to Buy Scotland website for more.

Help to Buy: equity loan in Wales

In Wales, you can obtain an equity loan mortgage on a new-build property up to a value of £300,000.

You will need to have a deposit of at least 5% of the purchase price. The Welsh Government will offer you a loan worth up to 20% of the value of the property, with the remaining 75% coming via a Help to Buy mortgage.

The loan can be repaid at any time within the term of the mortgage, or on the sale of the property.

In Wales, a £1 a month admin fee will apply from when the loan is taken out until it is repaid but the loan is interest-free for the first five years. Then, from year six, a fee of 1.75% is charged on the loan, which rises annually by the Retail Prices Index measure of inflation plus 1%.

To take advantage of this scheme you will need to find and reserve an eligible property being offered by a builder who is registered with Help to Buy Wales. You can find a local agent through the Help to Buy Wales website. A reservation fee might apply.

You will then need to fill out a Property Information Form and provide details of the proposed purchase, proposed main mortgage, deposit and household income. This will enable Help to Buy Wales Ltd to perform credit and affordability checks.

If you pass these Help to Buy Wales Ltd will send you, your solicitor and the builder an ‘Authority to Proceed’ giving you the green light to apply for a Help to Buy mortgage.

Who's offering the equity loan mortgages?

The following lenders are offering equity loan mortgages:

What happens when I sell the property?

The other option is a mortgage guarantee available UK-wide.

Once you have bought the property, you can make voluntary part repayments of the equity loan at any time. The minimum voluntary repayment is 10% of the market value at the time of the repayment.

Should you sell the property before you have finished paying off the equity loan, you’ll need to use the proceeds of the sale to do so. Exactly how much you have to pay will depend on the size of the equity loan you received at the outset.

So if you got a 10% equity loan, your repayment will be 10% of the total market value when it is sold. As a result, if you sell the property for less than you paid, you will repay a smaller equity loan than the one you used to buy the property. If it has increased in value, you'll pay back more.

See the latest mortgage rates and get expert advice

This guide aims to give information, not advice. Always do your own research and/or seek out advice from a regulated broker before acting on anything contained in this guide.

As with the equity loan, you’ll need a deposit of at least 5% of the home’s value. A mortgage lender will then lend you the remaining amount, with the Government essentially acting as a ‘guarantor’ on the mortgage.

By offering this guarantee, the Government is agreeing to compensate lenders for a significant chunk of any losses they may suffer in the event that the property is repossessed.

It will charge lenders an ‘insurance’ fee for this, which will then be passed on in the mortgage costs.

These mortgages are available on all residential properties (including new-builds) up to a value of £600,000. However, the property cannot then be let out.

How did the Mortgage Guarantee work?

The Help to Buy Mortgage Guarantee was available UK-wide.

As with the equity loan, you needed a deposit of at least 5% of the home’s value. A mortgage lender would then lend you the remaining amount, with the Government essentially acting as a ‘guarantor’ on the mortgage.

By offering this guarantee, the Government agreed to compensate lenders for a significant chunk of any losses they may suffer in the event that the property is repossessed.

It charges lenders an ‘insurance’ fee for this, which is then be passed on in the mortgage costs.

These mortgages were available on all residential properties (including new-builds) up to a value of £600,000.

See the latest mortgage rates and get expert advice

This guide aims to give information, not advice. Always do your own research and/or seek out advice from a regulated broker before acting on anything contained in this guide.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.

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The questions you must ask before you buy a house