Your Guide to Help to Buy Schemes

The Help to Buy scheme was introduced by the government in April 2013 to help make it easier for more people to get on the property ladder, giving them the option to purchase their first home with just a 5% deposit.

In this guide, we’ll take you through everything that you need to know about the Help to Buy scheme and the various elements within it. We’ll also explain Help to Buy ISAs, which were available from December 2015 until November 2019, and offered people who are saving for a deposit a 25% tax-free top-up from the government.

How Does Help to Buy Work?

By late 2015, just over two years after its launch, the Help to Buy scheme had been used to arrange a huge number of mortgages — 112,803 mortgages, to be exact. Over 80% of these were to first-time buyers, who tend to struggle the most when it comes to affording to buy a home.

The scheme seems set to continue, with further funding pledged until 2023. When it was first launched, there were two elements of the Help to Buy scheme. These were:

  1. Mortgage guarantee
  2. Equity loan

The mortgage guarantee element has been closed to new applications since December 2016, but the equity loan element is still available.

Help to Buy covers the following schemes:

  • Help to Buy London
  • Help to Buy Shared Ownership
  • Help to Buy Armed Forces

Who Can Apply for the Scheme?

First-time buyers, along with those looking to climb to the next rung of the property ladder, are eligible for an equity loan through the Help to Buy scheme. The loans can only be used for newly built properties worth up to £600,000 in England, depending on the location.

Different criteria are in place for England, Scotland and Wales. If you’re in Scotland, applications must be for no more than £200,000. If you’re in Wales, applications only apply for a maximum property value of £300,000.

Each scheme has specific criteria for further eligibility. In England, any property being purchased via the scheme must not be sublet or bought as part of a part-exchange deal on another home. Applicants are not eligible if they own any other property at the time of buying their new home.

Help to Buy ISA – All You Need to Know

New applications are no longer being accepted for Help to Buy ISAs. However, if you opened one before December 1, 2019, you can continue using it to save for a deposit as normal. If you missed the deadline, you may want to consider a Lifetime ISA (LISA). These work in a similar way and offer a 25% bonus for first-time buyers.

Here’s everything you need to know if you have an open Help to Buy ISA:

  1. You can continue saving up to £200 per month until 30 November 2029.
  2. If you are planning to buy your home jointly with another first-time buyer, you can combine your bonuses.
  3. Your Help to Buy ISA can be used for any property costing up to £250,000 — or £450,000 if you’re buying in London.
  4. It can be used when applying for any mortgage.
  5. The government will add a 25% tax-free bonus to any amount in the ISA when you use it to buy a home, up to a maximum of £3,000.
  6. The Help to Buy ISA bonus does not help with the exchange deposit, only with your mortgage deposit.
  7. You are able to rent your property out if you have used a Help to Buy ISA as part of the deposit.
  8. You will need to hire a solicitor to apply for the bonus cash when buying a home.
  9. You can transfer your Help to Buy ISA to increase the rate.
  10. You can’t pay into a cash ISA if you’ve paid into a Help to Buy ISA within the tax year.

The Alternative to Help to Buy ISAs – Lifetime ISAs

If you missed the deadline for a Help to Buy ISA, consider a Lifetime ISA (LISA), which allows you to save up to £4,000 per year towards either your first home or retirement. It also gives you an additional cash bonus of £1,000 per year.

What are the main features of a Lifetime ISA?

  1. You get a 25% bonus up to £4,000 each tax year.
  2. You are not locked in once it is open; you are free to transfer the ISA to another provider at any point.
  3. You can contribute to both a Lifetime ISA and a cash ISA at the same time.
  4. If you withdraw the cash for any use other than your first home or retirement, you will pay a penalty.
  5. You can open a Lifetime ISA if you are aged between 18-40.

Buying your first property using a Lifetime ISA

  1. You must have never owned a property anywhere in the world before.
  2. If you’re planning to buy your first home as a couple, you and your partner can have one LISA each.
  3. You must be buying a residential property in the UK worth £450,000 or less.
  4. You must have the LISA open for at least one year before you can use it to purchase your first home.
  5. Lifetime ISAs offer less flexibility compared to Help to Buy ISAs.

Help to Buy Equity Loan: Is it Right for Me?

Equity loans work like this: a potential buyer must save a deposit of at least 5% of the value of a property for the government to lend them up to 20% of the property’s value. The remaining 75% needed to purchase the property is borrowed as a mortgage.

For example, a buyer looking to purchase a home worth £200,000 would have to save a deposit of at least £10,000. The government then lends them £40,000 as an equity loan, and the remaining £150,000 would be borrowed as a mortgage.

The equity loan is free for the first five years; after this point, buyers must pay interest back to the government at a rate of 1.75% of the loan’s value. The loan itself must be paid in full after 25 years, or when the mortgage ends, or when the house is sold, depending on which occurs first. The size of the loan payment will depend on how much the property is sold for.

Help to Buy and Shared Ownership

If you cannot afford to get a mortgage for an entire property for any reason, the Shared Ownership scheme from Help to Buy gives you the option to purchase between 25-75% of the property’s total value, and rent the rest. You have the option to purchase bigger shares of your home in the future when you are able to afford to.

You can take advantage of this scheme in England if:

  • Your total household income is lower than £80,000 per year (or £90,000 if you’re based in London).
  • You are buying a property for the first time.
  • You have owned a home in the past but are unable to afford to purchase one right now.
  • You are an existing shared homeowner looking to relocate.

Help to Buy: Shared Ownership allows you to buy a newly built home or an existing one through a housing association resale program. You can pay for your share using either a mortgage or your savings. Properties available through shared ownership are always leasehold.

Older people

If you are over the age of 55, you can get additional help from Older People’s Shared Ownership. This scheme works similar to the standard Shared Ownership scheme, but only allows you to purchase up to 75% of your property. Once you have purchased 75%, you will not pay rent on the outstanding 25%.

People with disabilities

If you are disabled, Home Ownership for People with Long-Term Disabilities (HOLD) can assist you with buying any home that is for sale on a Shared Ownership basis. You will only be able to apply for HOLD if the Help to Buy properties available via other home ownership schemes do not meet your needs.

How to Apply

To buy a home through this scheme, you should contact the area’s Help to Buy agent.

What Other Options Are There?

  • Guarantor mortgages

This is a type of home loan where a parent or other close family member takes on some of the risk of the mortgage by guaranteeing it. This will usually require your guarantor to offer their savings or their property as collateral against the loan. They will also need to agree to cover the mortgage payments if you are unable to.

If you have somebody willing to act as a guarantor, this type of mortgage could mean that you might be more likely to get accepted, qualify for a lower interest rate, or be able to borrow more.

You can use a guarantor loan to borrow up to 100% of a property’s value, but 100% mortgages are rare, so it’s likely that you will still have to save up for a deposit if you take this route.

  • 90% mortgages

If you are able to save a 10% deposit, then a 90% mortgage could be an alternative option to consider. This makes it a popular choice for first-time buyers who do not want to take the Help to Buy route. However, due to the longer term of these mortgages, you are usually likely to end up paying higher interest rates in the long run.

  • Partnership schemes

New private schemes similar to shared ownership are going to be available in the future. Through these schemes, you purchase shares of your home with the help of a funding partner. Then, you must pay rent to the funding partner on their share of the home.

  • Starter homes

The government’s various starter home schemes are designed to make it easier for first-time buyers to afford their first home with a discount. However, no homes have been built so far.

  • Right to buy

If you are currently a tenant in a council or housing association home, you have the right to buy your property, often at a cheaper rate compared to buying elsewhere. You can do this using the conventional method or via the Help to Buy scheme.

  • Help from family

If your family is willing to help you put a larger deposit down on your home, this may be the most straightforward option. A larger deposit means you will borrow a smaller mortgage, increasing your chance of acceptance. Plus, repaying a loan to family means you may not be required to pay interest or worry about foreclosures on your home if you are unable to make a payment.

What are the Advantages of the Help to Buy Scheme?

  • You get help buying a home

If you want to buy your first property but are struggling to save a deposit, the Help to Buy scheme can make all the difference. It has given thousands of first-time buyers a foot onto the property ladder. This has led to a boost in the housing market, improving the wider economy, and increased new build home sales.

  • You can buy a house with a smaller deposit

Many first-time buyers find that saving for a deposit is one of the most difficult aspects of getting onto the property ladder. This is especially true if you are unable to get financial help from your family, or are unable to reduce your own monthly costs while you save.

With the Help to Buy scheme, you still have to save for a deposit, but this is set at a much more manageable level of just 5%. Since this is much lower than many other mortgage options, it allows most buyers to get on the property ladder more quickly than they would have done otherwise.

  • You can borrow interest free

The fact that you do not need to pay any interest on your loan for the first five years is a main selling point for the Help to Buy scheme. First-time home buyers in particular often find those first five years the most stressful; having some breathing space is certainly an advantage.

  • You may access cheaper mortgage rates

The Help to Buy scheme means that you’ll probably need to borrow less overall. In turn, you’re more likely to qualify for a mortgage. And since you have help from the government, you will borrow less; you are more likely to get a competitive interest rate. You can use a Help to Buy mortgage calculator to work out how much you’ll borrow and repay.

Are There Any Disadvantages of Help to Buy?

  • Your loan is not fixed

The overall amount that you will need to repay on your Help to Buy loan isn’t fixed; it will fluctuate in line with the market value of your property. This means that if your house rises in value, you may need to pay significantly more than you borrowed.

  • You’re restricted to certain lenders

An increasing number of lenders are offering Help to Buy mortgages. They are normally different to standard mortgage packages as a third party is involved with the purchase of your property. However, not all lenders will be suitable, so you need to compare your options and shop around for the most competitive deal.

  • Your loan will increase over time

Although you have the benefit of five years without interest, after this time, the rate of interest applied to your loan will increase yearly.

What Should I Do Next?

If you opened a Help to Buy ISA before the deadline last year, you should continue saving up to £200 per month. If you do not have an open Help to Buy ISA, opt for a Lifetime ISA to save for your first home.

  1. Save at least 5% of the value of your new property.
  2. Contact a local Help to Buy agent for more information. They can guide you through your individual application.
  3. Appoint a solicitor to access the government bonus towards your home.
  4. Apply for a suitable Help to Buy mortgage.
  5. Once accepted, finalise the sale and move into your new property!

Why You Should Choose JonSimon Estate Agents

At JonSimon Estate Agents, we are the experts in all things Help to Buy. Whether you have your eye on a certain property or are looking for information on properties available through the Help to Buy scheme, we can help you get the keys to your first home.

We understand that navigating the Help to Buy scheme can be overwhelming. We can provide you with more information on your eligibility and step-by-step instructions on what to do next once you have determined which element of the Help to Buy Scheme that you are eligible for.

We can also help by providing you with more information about eligible Help to Buy mortgage lenders and property developers in your area offering shared ownership, to help you get the best deal on the perfect home for you.

Get in Touch

Are you interested in learning more about how the Help to Buy scheme could help you become a homeowner faster? We are here to help. Get in touch with your local JonSimon branch below and one of our helpful advisors will be happy to speak with you about Help to Buy homes.

Radcliffe: 01617 231 155

Ramsbottom: 01706 489 966

Greenmount: 01204 882 233

Burnley: 01282 427 445

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