Help to Buy is the name of a government scheme in the United Kingdom that aims to help first time buyers purchase residential property. When purchasing a new apartment or house in London, the buyer can apply for a loan of up to 40% of the value of the property. After that, the buyer must post a security deposit of 5% and obtain a mortgage, which will cover the remaining 55% of the price of the housing. Note that some changes were made to the government Help to Buy program in 2021. Previously, it was available to everyone but now only first-time buyers can apply for this government scheme.
Help to Buy London developments, which you can purchase under this program, provides exclusively new-build properties. Using the scheme, the buyer receives a loan in the form of equity participation, which is interest-free for the first 5 years. At the end of this period, he pays interest at 1.75% starting in the 6th year. The interest rate increases annually. The buyer has 25 years to fully repay the loan if he does not sell the property before then. In the event of a sale, the purchaser must repay the loan. Thus, in order not to pay high interest on the loan, it is better to try to pay the entire amount in the first 5 years.
It is essential to remember that it is the value of the home that affects the loan amount. So, what happens if property costs rise or fall? As your Help to Buy equity loan depends on the market value of your home, any change in real estate prices can affect the amount you have to repay. That is, if the value of real estate rises by 10%, then the interest rate that you need to pay rises in accordance with the already new value. It must be considered when deciding if you are going to purchase one of the Help to Buy London properties.
|Example of Help to Buy in London|
|Cost of the home is £250,000|
|Cost name||Percentage of total||£ value|
To participate in the London Help to Buy program, you have to comply with the established rules.
|Region||Help to Buy price cap|
|Yorkshire and the Humber||£228,100|
|East of England||£407,400|
If the buyer does not have the total amount of money to purchase the new home, then the opportunity to buy one of the Help to Buy houses in London through a government program seems tempting. But before deciding on this step, you need to know everything about the advantages and disadvantages of the program.
|+ Full ownership. The buyer owns 100% of the purchased home.||- New buildings only. Help to Buy houses do not cover resale properties.|
|+ Small deposit. The buyer needs to pay a deposit of only 5% of the total value of the house.||- Regional prices. In each region, prices are set, which should not exceed the purchased house.|
|+ 5-year interest-free period. The buyer can manage to pay the cost of the house during the first 5 years and not pay interest on top at all.||- Not a fixed amount. If the property price rises, the buyer pays interest on the new value.|
|+ Family income does not matter. The purchase of Help to Buy real estate does not provide for maximum family income restrictions.||- Growing interest. At the end of the interest-free time, the interest rate increases annually.|
|+ 25 years to pay off the loan. You have a long enough period of time before you have to repay the loan in full.||- Remortgage is a question. Many remortgage deals are only accessible to those who have paid off their loan.|
|+ Low mortgage rates.||- Repair permit. Before you can start improving your apartment or house, you need to get a permit.|
If you decide to become a member of the Help to Buy program, here is a small guide on how to do it:
The first five-year period of the Help to Buy: Equity Loan is interest-free. After these five years, you will be charged 1.75% on the outstanding amount as interest. The fee will increase annually by CPI plus 2%. You must only repay the interest, not the equity loan.
To take advantage of the Help to Buy scheme, you will need a minimum 5% deposit. But you can make a large amount of the deposit, which will reduce the size of the loan provided by the government. For example, with a deposit of 10%, the equity loan will be 10%, and the mortgage will be 80% to cover the rest of the property value.
At the end of the interest-free period, the buyer begins to pay interest on the loan. But this does not mean that you repay the loan itself. Beginning in the sixth year, the buyer is charged interest of 1.75%, which increases each year in April based on the inflation rate at the time (according to the Consumer Prices Index), plus 2%.
No, as the Help to Buy program is only accessible for first-time buyers. To be considered a first-time buyer, you need to have never owned a property.
A first-time buyer is a person that does not own, or has never owned, a house or residential land now or in the past in the UK or abroad.
The Help to Buy program is used only for new-build properties and can't be used to buy a second home or a buy-to-let property.
Remember that the Help to Buy properties only covers new build properties in London. Korter provides a special filter of Buying Schemes -> Help to Buy, where you can see all the properties that support the Help to Buy scheme in London.
You will need a minimum deposit of 5% as the government provides a 20% equity loan and a mortgage part accounts to 75%.
The Help to Buy equity loan must be paid when the house is sold or at the end of the mortgage period. It depends on what happens first. In addition, it is allowed to pay part of the amount without selling the house. The buyer can pay 10%, 20% or the full amount if the loan is at least 10% of the value of his home.
No. If you can afford to buy another home you will have to repay the Help to Buy Equity Loan.