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How does Help to Buy work

Help to Buy is a governmental scheme that helps you move houses or purchase a residential property with a deposit as little as 5%. How can you use the Help to Buy scheme?

  1. Through an equity loan: the government lends you money to buy a newly built house, regardless if you are an existing homeowner or a first-time buyer;For your 5% deposit, the government lends you 20% of the home value as an equity loan, and you can get a mortgage for the remaining part
  2. You do not pay any interest on the equity loan for the first five years and starting with the sixth year; the interest will be 1.75% of the loan
  3. Starting with the seventh year, you will pay 1.75% plus the inflation based on the Retail Prices Index plus another 1%
  4. With a mortgage guarantee: the government acts as a guarantor for your mortgage lender; the government will cover any losses the lender might suffer from you not paying your monthly mortgage paymentsCan be used for old and new houses up to £600,000
  5. Similar to Help to Buy equity loans, London “Help to Buy” scheme loans you 40% of the house value, rather than 20%, when you buy in London.
  6. Help to Buy ISA: this is the best option for people saving to buy their first house; for every £200 you put in this type of tax-free savings account, the government adds £50, up to £3000. The limits on the house value when you apply for an equity loan is £250,000 in the UK and £400,000 in London.

Am I eligible for Help to Buy scheme?

If you already own a house, you can use Help to Buy to move houses, but not to buy a second home or a residential property you plan on renting. “Help to Let” is the scheme where you can buy a property with the intention to rent. On the other hand, Help to Buy only works with repayment mortgages (you pay back the capital and the interest together; the opposite type of mortgage is paying the interest first and then the capital).

“Forces Help to Buy” is a distinctive part of the Help to Buy scheme, where, if you are serving in the military, you can borrow up to 50% of your salary (interest-free) for a deposit and other buying costs, including legal fees. The maximum you can borrow is 25,000, repayable over the years. You must have completed a minimum length of service before applying, be more than six months away from the end of your service and also meet certain medical criteria.

Posted by on 15/11/2016 in First time buyers, Help to buy

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