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Help to Buy Mortgage Guide

The Help to Buy equity loan scheme has helped hundreds of people buy their own home and get on the property ladder. The scheme works by enabling buyers to fund their purchase with a deposit, a mortgage and a government-backed loan. You will take out a mortgage which you make monthly repayments on in the normal way, but your purchase is supplemented by a loan that is interest-free for the first 5 years. 

There are many benefits of the Help to Buy scheme, not least that it enables people to buy a home with as little as a 5% deposit, which can often be one of the biggest hurdles to property ownership. And with the loan itself interest-free initially, it can be a great way of buying a property that may otherwise be out of your budget. 

But understanding the scheme and how it works can be challenging, particularly for first time buyers who aren’t familiar with the property buying process. In our Help to Buy mortgage guide, we’ve compiled some of the most common questions around the Help to Buy scheme, from the lenders who offer Help to Buy mortgages to how to save for your deposit and the best ways to repay your equity loan. 

Contents

Help to Buy mortgages during Coronavirus 

How has COVID-19 impacted the Help to Buy scheme? In the first section of our Help to Buy guide, we’ll highlight some of the government’s changes to the scheme and how they may impact buyers. 

What is a Help to Buy mortgage? 

What is the Help to Buy scheme and how does it affect buyers? We’ll explain how the scheme works and how Help to Buy mortgages differ from a standard mortgage. 

Who offers Help to Buy mortgages?

There’s a wide variety of lenders who can provide Help to Buy mortgages, but it can be beneficial working with a mortgage broker to help you find the right deal for you and your circumstances. In this section of the Help to Buy mortgage guide, we identify the lenders offering mortgages as part of this scheme. 

How to apply for a Help to Buy mortgage

There are several steps to applying for a Help to Buy mortgage, which all starts with getting in touch with your local Help to Buy agent. From there, you’ll go through a few stages before completion, including applying for a Help to Buy mortgage. 

Repaying a Help to Buy mortgage

With a Help to Buy loan, you will need to pay off your loan within the mortgage term or when you sell your home, whichever is sooner. In this section of our guide, we will explain how to repay your Help to Buy loan and the benefits of paying it sooner. 

How to save for a Help to Buy deposit 

There are several ways to save for your Help to Buy deposit – in this section of our guide, we explain how two of the most popular options work and why you should consider saving in an ISA rather than a regular savings account. 

Benefits of Help to Buy 

Help to Buy has enabled a large number of people to benefit from property ownership who would have struggled otherwise. In this section of the Help to Buy guide, we highlight some of the benefits this scheme provides to first time buyers. 

Am I eligible for Help to Buy?  

There are certain criteria which applicants need to meet in order to qualify for Help to Buy and this criteria changes depending on when you apply, as a new iteration of the scheme is coming into effect from April 2021. We outline the key eligibility criteria and who can and cannot apply for this loan scheme. 

When will Help to Buy end?

The Help to Buy scheme has a deadline so those looking to utilise this scheme need to act quickly. In the final section of our guide, we’ll explain when the scheme will close. 

Help to Buy mortgages during Coronavirus

Covid-related delays have impacted thousands of sales and left buyers facing huge bills due to purchases falling through at the last moment, which the government is hoping to mitigate through extensions. 

The Help to Buy scheme is due to end in March 2021, but with Covid-related delays, there are more than 16,000 homes at risk of not being completed in time. The cause of these delays included supply lines being slowed down, the furlough of many traders and workers needing to self-isolate. However, there is a deadline extension in place to allow buyers until 31st May 2021 to legally complete their Help to Buy purchases. 

Another reason that buyers will want to complete sooner rather than later is to take advantage of the stamp duty holiday for homes up to a value of £500,000, which is also due to finish at the end of March 2021. 

1: What is a Help to Buy mortgage?

Help to Buy has enabled thousands of people get onto the property ladder where they would have otherwise struggled. But what is a Help to Buy mortgage? This government scheme is designed to help first time buyers buy a property with a 5% deposit, enabling them to borrow 20% of the property price (40% in London), on an interest-free basis for five years. 

So, how do Help to Buy mortgages work? With a Help to Buy mortgage, you borrow the remaining amount of the purchase price from the lender, after your deposit and the 20% loan from the government have been deducted. The government loan means that you won’t need to borrow as much from your mortgage provider which can open up the pool of lenders available to you, since the loan to value (LTV) ratio is smaller. 

This Help to Buy equity loan scheme is only available in England, but there are similar schemes available in Scotland, Wales and Northern Ireland if you are looking to purchase in these areas. 

2: Who offers Help to Buy mortgages?

The first step to applying for Help to Buy is knowing who offers Help to Buy mortgages. Most people using this scheme will require a mortgage to cover the remainder of the property price, so finding a suitable lender is a key step in the purchase process. There are certain lenders who offer mortgages in line with the equity loan scheme, so it’s important to seek out a mortgage provider who is happy to lend to you if you’re using the scheme. 

Speaking to a mortgage broker can help you find out which lenders offer Help to Buy mortgages, as they have access to the whole market to help you find the right deal. A mortgage broker with extensive experience in the Help to Buy scheme, such as Town & Country Mortgage Services, can help you streamline the process as well, as they’ll be able to help you understand what you need to have in place for your application. 

Currently, participating lenders include:

  • Accord
  • Aldermore
  • Bank of Ireland UK
  • Barclays
  • Chorley Building Society
  • Cumberland Building Society
  • Halifax
  • Leeds Building Society
  • Leek Building Society
  • Lloyds Bank
  • Mansfield Building Society
  • Monmouthshire Building Society
  • Nationwide Building Society
  • NatWest
  • Newcastle Building Society
  • Newbury Building Society
  • Royal Bank of Scotland
  • Santander
  • Skipton Building Society
  • Teachers Building Society
  • The Melton Building Society
  • The Mortgage Lender
  • TSB
  • Vida Homeloans
  • West Brom Building Society

3: How to apply for a Help to Buy mortgage

Before you can get started with your Help to Buy application, you’ll need to check you have the funds for the fee to reserve your property (which can be up to £500), as well as your 5% deposit and any other fees for completion, such as stamp duty, mortgage fees and legal fees. 

In order to buy a Help to Buy property, you will need to contact your local Help to Buy agent who will help you:

  • Find an available property
  • Check your eligibility
  • Start your application
  • Find out if you’ve been accepted for your equity loan

One question you may have is ‘how long does a Help to Buy application take to go through?’. Because you have to work with your local Help to Buy agent to buy your property, the process can be a little longer than with a standard property purchase, but on average, you’ll wait around 6 weeks for your Help to Buy home to complete. However, this can vary depending on how busy lenders and agents are, and if there are any complications in your application which can slow up the process a little. 

At this stage, you should also look into how to apply for a Help to Buy mortgage alongside your equity loan. It can help to speak to a mortgage broker at this point as they will have full access to the market and will be able to help you find the best deal. 

Alternatively, you can use online mortgage comparison tools to give you an idea of how much you could afford to borrow and how much mortgage providers will lend you. Bear in mind that these are only tools for estimating the figure and they don’t take your financial situation into account. But they can give you a better idea of what you might be able to borrow. 

Once you know roughly how much you can afford, you can book an appointment with a mortgage broker to discuss applying for a mortgage. There are a few documents and details you’ll need for a mortgage application, including:

  • Photo ID, such as a passport or driving license
  • Proof of address, such as a utility bill or bank statement, dated within the last 3 months
  • Bank account details
  • Details of any loans and credit commitments
  • Details of any insurance policies
  • Your solicitor’s details
  • Details of the property you want to buy, such as:
    • The number of years remaining on the lease if it’s a leasehold property
    • The value and type of property
  • Last 3 months of payslips
  • Last 3 months bank statements

Finding these documents can be tricky and you may have to wait for some of them to be sent out to you by various companies, so it can help to speed up the application process if you have them in advance of your appointment. 

4: Repaying a Help to Buy mortgage

When it comes to buying your first home, you may be wondering how to repay a Help to Buy mortgage. Repaying Help to Buy loans occurs either when you sell your home or when your loan term comes to an end – whichever happens first. Your loan is for a percentage of the property price, rather than a set value, so you’ll repay the market value of your loan at the time, rather than the amount you borrowed. 

The Help to Buy loan is interest-free for the first 5 years, after which you’ll be charged a fee of 1.75% of the loan’s value and the fee will increase each year in line with the Retail Price Index, plus 2%. For this reason, it’s a good idea to pay back your equity loan as soon as possible to avoid paying interest on the money you’ve borrowed. 

If you’re looking at how to pay off Help to Buy sooner, you can repay a portion of the loan earlier in bigger chunks of 10% or 20% of the property’s total value, which can make the final figure lower and easier to pay off. 

There are a couple of ways to pay back the loan sooner. One way, if you have built up significant savings or have come into money over the years before your interest rate increases, is to use savings to settle the equity loan. Bear in mind that the amount you borrowed isn’t necessarily how much you’ll pay back, as it’s based on a percentage of the property’s current market value. 

Another option is to remortgage your property to pay off the loan. In an ideal situation, the value of the property will have increased over the first five years enough to pay off the equity loan. Some lenders may allow you to remortgage and increase your loan to value rate (LTV) in order to pay off the loan, so you can avoid paying the interest and benefit from any future profit made on the property. 

However, this is a serious change to make to your budget and requires careful consideration, so it can be helpful to speak to a mortgage broker who can help you assess your situation and determine if remortgaging is the right decision for you. 

5: How to save for a Help to Buy deposit

Getting the deposit needed for Help to Buy can be one of the hardest challenges of buying a property, but the benefit of a Help to Buy deposit is that you need a smaller amount of money than you would for a standard purchase. In fact, you will only need 5% of the purchase price. 

The amount you’ll need to save will vary depending on the purchase price. Help to Buy maximum deposit amounts will vary on where you’re buying, as there are different price caps around the country. For example, in London, the maximum purchase price is capped at £600,000, while in the South West, it’s £349,000. 

There are a few different ways to save for your property deposit, but ISAs are a great way of maximising your money to its full potential and they can offer additional benefits besides interest rates. 

Help to Buy ISA

While you can’t open a new Help to Buy ISA now, if you already had one, you can continue to save into it until November 2029. The Help to Buy ISA is a government scheme which was designed to help you save towards your mortgage deposit – the eligibility criteria is being a first time buyer and not owning a property anywhere in the world. 

The savings in your Help to Buy ISA are tax-fee, as with any ISA product, but with this particular account, you have the added advantage of earning a bonus. The government will top up your contributions by 25%, up to a limit of £12,000. Essentially, this means that for every £200 you save, you’ll receive an extra £50 from the government for free. 

The minimum amount required to qualify for this bonus is £1,600, which would provide you with a bonus of £400, or an initial deposit of £1,200 which also qualifies you for the 25% increase from the government. 

Another benefit of this ISA is that each first time buyer is eligible, rather than the scheme applying per home, so if you’re buying with your partner, you can both have a Help to Buy ISA and earn extra as a result. 

Lifetime ISA

A Lifetime ISA, sometimes referred to as a LISA, allows you to save up to £4,000 each tax year which can be used towards your first home or retirement. The government then adds a 25% bonus on top of your savings, so you could get up to £1,000 in free cash each year towards your deposit. The LISA has replaced the Help to Buy ISA. 

In order to open a LISA, you need to be 18 or over, but under 40 years of age. And you can save up to £4,000 each year until you’re 50. You can either save cash, stocks and shares, or a combination of both, in your Lifetime ISA account. 

However, you can only withdraw money from this ISA if you’re buying your first home, aged 60 or over, or you’re terminally ill with less than 12 months to live. If you withdraw money for any other reason, you’ll pay a withdrawal charge which is set at 20% until April 2021, when it goes up to 25%. 

6: Benefits of Help to Buy mortgages

There are several benefits of Help to Buy mortgages, which makes this a popular scheme if you’re struggling to get on the property ladder. Using the equity loan provided by the Government provides two primary advantages – it allows you to buy with a much smaller deposit and because you’re borrowing a smaller amount from the mortgage provider, your monthly repayments will be smaller. 

Backed by the equity loan which will boost your deposit, it’s likely that you’ll be able to get a mortgage more easily than if you were borrowing a larger amount from the mortgage provider. It also means that you’ll have access to a better rate as you’ll be taking out a smaller amount. 

Another benefit of the Help to Buy scheme is that the loan is for a percentage of the property value, instead of a set figure. This means that if the property drops in value, you’ll actually pay less back. What’s more, the loan is interest-free for the first 5 years so if you can pay it off before that interest rate begins, you’ll be able to take advantage of a cheaper way of borrowing. 

For some people, the Help to Buy scheme is the only way that they would be able to get on the property ladder, making home ownership more accessible to a wider group of people. As with any loan scheme, there are pros and cons to consider, so think carefully about whether it is the right decision for you and your specific financial circumstances. 

7: Who is eligible for a Help to Buy mortgage?

As with any loan scheme, there are certain criteria that applicants need to meet in order to be accepted, which may leave you wondering ‘am I eligible for Help to Buy?’. The Help to Buy mortgage eligibility, from April 2021, is as follows:

  • You need to be a first time buyer to qualify and you will need to purchase a new build property 
  • You will need a deposit of at least 5% of the property’s value
  • You will need to secure a mortgage for the remainder of the property value
  • You will need a clean credit history and be able to supply evidence that you can make the monthly repayments (those with CCJs from 3 years prior to the application will not qualify)
  • Overseas buyers who have no history of UK home ownership will not be able to take advantage of the scheme
  • The scheme can’t be used in conjunction with another home ownership scheme, such as NewBuy

There are price caps for each region as well, which will determine the maximum property price for your area:

RegionMaximum property price
North East£186,100
North West£224,400
Yorkshire and the Humber£228,100
East Midlands£261,900
West Midlands£255,600
East of England£407,400
London£600,000
South East£437,600
South West£349,000

8: When will Help to Buy end?

The Help to Buy deadline was extended as a result of the pandemic, leaving many people wondering ‘when does Help to Buy end, and am I too late?’ The current iteration of the scheme is set to finish on 31st March 2021. There are plans to scale back the scheme and implement an alternative Help to Buy programme from April 2021 until March 2023, which will be restricted to first time buyers only. 

However, for those already involved in the process, the current scheme will be extended until May 2021 to allow the legal aspects of purchases to be completed, to make up for any delays caused as a result of the pandemic.

Find Out More

Town and Country Mortgage Services are highly experienced mortgage specialists with a wealth of knowledge in Help to Buy and other mortgage matters. If you would like advice, guidance or you have a question about the Help to Buy mortgage scheme, get in touch with us today and we will be happy to help you begin your property purchase journey. 

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