Help to Buy scheme: everything you need to know

Help to Buy is a government scheme which can help you to buy a property with just a 5% deposit. Find out how the scheme works and how to qualify.

What is Help to Buy?

There are two ways to make use of the scheme:

  • Equity loans where the government lends first-time buyers and existing homeowners money towards a newly built home.
  • Mortgage guarantee where the government promises your lender that it will cover part of any losses they may sustain as a result of the mortgage not being repaid. This is available for new and old properties across the UK.

It’s important to note:

  • You can’t use these 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

National differences

Both these schemes are for homes costing up to £600,000 in England, £250,000(originally £400,000) in Scotland and £300,000 in Wales.
Northern Ireland has a different equity sharing scheme called co-ownership.

Help to Buy: Equity loans

How they work

  • You need at least 5% of the purchase price of your new-build flat or house
  • The government lends you up to 20% of the purchase price
  • You borrow the rest (up to 75%) from a mortgage lender, on a repayment basis

Here’s an example for you

Cost of home – £200,000

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 will be charged 1.75%. After that, 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:

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 of the equity loan without selling your home, as long as the loan is still worth 10% of the value of your home.

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.

Help to Buy: Mortgage guarantees

How they work

These are government-backed mortgages. The aim is that the guarantee will encourage the lender to give you a mortgage which only requires a small deposit.

Mortgage guarantees are for

  • People living in England, Wales, Scotland and Northern Ireland
  • Buyers with a deposit of at least 5% of the purchase price
  • First-time buyers and existing homeowners who are moving
  • New or old properties selling for up to £600,000

They are not for

  • Second homes
  • Properties you intend to rent out
  • Anyone who is using or going to use another home buying scheme

How do I get a mortgage guarantee?

Most major lenders are now offering mortgages under the Help to Buy guarantee scheme.

You should be aware that the lender will check you can afford mortgage repayments and, ultimately, you are still responsible for paying the mortgage in exactly the same way as any other mortgage.

Using a mortgage guarantee for remortgaging

If your home’s value has dropped or if you owe your existing mortgage lender 95% of the cost of the value, a few lenders are offering mortgage guarantees to those looking to remortgage.