What is Help to Buy?
Help to Buy is a Government-backed scheme to allow first-time buyers and low earners to purchase a home. Introduced in April 2013, so far it has helped around 300,000 people to get on the property ladder. Currently it has funding of £10 billion that will allow it to run until at least 2021.
What are the different options?
There are three Help to Buy options: equity loan, Help to Buy ISA and shared ownership.
The equity loan is a loan of up to 20 percent of the purchase price of a property (40 percent in London), which is interest-free for the first five years. After that, you pay interest on the loan of 1.75 percent annually, rising by 1 percent above the rate of inflation every year after that. The interest payments do not reduce the loan amount. Instead the loan is repaid when the house is sold or the mortgage is repaid, whichever comes first.
A Help to Buy ISA lets you save money tax free for a deposit and the Government will boost your savings by 25 percent. For example, for every £200 you save, you get a bonus of £50. The maximum bonus you can receive is £3,000.
Shared ownership allows you to buy up to 75 percent of a newbuild or second-hand property and pay rent on the remaining share. When you can afford it, you can buy further shares in your home, a process known as staircasing.
I want to buy in London, what scheme can I use?
There is a specific London Help to Buy equity loan scheme for those who live in the capital that reflects its higher property prices. When you’re looking to buy in a London borough, you can borrow up to 40 percent of the purchase price, to a maximum of £600,000. The equity loan only applies to newbuild properties.
Am I eligible for a Help to Buy equity loan?
Those eligible for equity loans include first-time buyers and homeowners who want to move. The home you intend to buy must be a newbuild and cost no more than £600,000. You cannot own any other property when you buy with an equity loan nor can you use an existing property to part-exchange for a new equity loan-funded home.
This scheme is only available in England. Both Scotland and Wales have their own separate Help to Buy projects.
What sort of property can I buy and is there a price limit?
The property you buy using an equity loan must be a newbuild and it must have a maximum price tag of £600,000.
How much will I pay back?
You must pay back the full amount of the equity loan when the property is sold or the mortgage is paid off, whichever comes first. The first five years of an equity loan are interest free. After five years, you start to pay interest on the loan of an initial 1.75 percent annually. This will rise every year by 1 percent above the rate of inflation. These interest payments will be on top of your mortgage payments, so it’s important to ensure you can afford to keep up all the repayments after five years.
Can I pay the equity loan off early?
Yes, you can pay off the equity loan in lump sums of 10 percent. Where a property has increased in value, you can remortgage and use the equity to pay off the loan.
What happens when I decide to sell?
You must repay the outstanding equity loan when you sell up. As the Government has a 20 percent share of your property (40 percent in London), you must have an independent valuation carried out and when the property is sold, you will have to repay 20 percent of the selling price to the Government.
How do I apply?
There are Help to Buy agents in each region of England who will assess your eligibility and help you apply for an equity loan. You can find the one for your region on the Help to Buy website.
When do I need a conveyancing solicitor?
Once you have been accepted on the Help to Buy scheme and have found the property you want to buy, you need to instruct a solicitor to act on your behalf for the purchase. Homeward Legal works with solicitors across England who are expert in dealing with Help to Buy purchases and can give you the precise advice and service needed. Call us on 0800 038 6699 now to find out what we can do for Help to Buy customers.