How a Help to Buy Loan Makes Buying a House More Affordable

Help to buy loan: Fund your property purchase with a low-interest loan from the government for 20% of the property value.

Ease the burden of property purchase with a low-interest government loan

You’re keen to buy your first home but the prices are too high. You want to move up the property ladder but are hamstrung by the cost. It’s no secret that property in the UK can be expensive. Here to help is the government’s Help to Buy scheme. It gives you access to a low-interest loan for up to 20% of the value of your desired property. That could make all the difference.

Here’s everything you need to know about the Help to Buy equity loan.

Are you eligible for Help to Buy?

The Help to Buy scheme is available to buyers in England and Wales up to the age of 75. There is no maximum income threshold but the property you are purchasing must be your only residence – e.g. no second homes – and cannot be used as a buy-to-let property.

How does the Help to Buy scheme work?

With the Help to Buy scheme you can get a mortgage for 75% of a property’s value with just a 5% contribution from your own savings. The remaining 20% of the deposit is provided by the government in the form of a low-interest equity loan.

Let’s assume you were looking at a £250,000 property. With the Help to Buy scheme you could fund the entire purchase with just £12,500 (5%) of your savings. The government contributes 20% of the value (£50,000) with the remaining 75% funded by a £187,500 mortgage.

Things work a little differently in London…

In London the thresholds are slightly different. As above you contribute 5% towards the purchase from your savings. The government then contributes 40% of the value of your property, with the remaining 55% covered by your mortgage.

So if you were looking at a £400,000 property in London, £20,000 of personal savings would be enough to obtain the property through Help to Buy. The government’s 40% contribution would cover £160,000. The remaining £220,000 would be made up by your mortgage provider.

What sort of property can you purchase?

The Help to Buy equity loan is available on purchases of up to £600,000 in England and £300,000 in Wales. The property must be a new build from a registered Help to Buy developer. (Contact us for a list.) If you are an existing homeowner you can reserve a new build Help to Buy property but you must sell your current house before completing on the new property.

Paying back the loan

The Help to Buy loan is an incredibly efficient way to fund your property purchase. You repay the loan in monthly instalments, but the first five years are interest-free. From the sixth year you’ll be charged interest at 1.75% of the loan’s remaining value. This percentage will increase each year according to the Retail Prices Index plus 1%.

A Help to Buy agent will set up your monthly repayment plan and you will receive a statement on your loan each year. You must pay back the loan within 25 years, by the end of your mortgage term or when you sell your property – whichever comes soonest. You can choose to repay the loan in full at any time without penalty.

What if you need help with the 5% deposit?

With the Help to Buy scheme you can fund a property purchase with just 5% of the value of the house from your own savings. If that sum is still out of reach, don’t give up. The government has another scheme called the Help to Buy ISA. Think of it as a fabulous saving fund for first-time buyers. Once you have saved enough for a deposit, the government will add 20% to your savings pot – just like that.

>> Read more about the Help to Buy ISA

Save money by dodging stamp duty

You may be able to make your property purchase even more financially accessible thanks to new tax regulations. From 22nd November 2018 first-time buyers in England paying £300,000 or less for a residential property will be exempt from stamp duty. That could save you thousands of pounds.

How do you apply?

The Help to Buy equity loan makes property purchase less of a financial burden for millions of budding homeowners. However the application process can be complex. Once you have found a suitable new build property with a registered Help to Buy developer, there’s important paperwork to complete.

Here at Belvoir  estate agency in Peterborough we have a strong record of assisting buyers who have utilised affordable home ownership schemes. We can help you use your loan to find your perfect home. If you live in Peterborough and would like to discuss your options, please feel free to contact me directly. Don’t worry, there’s no charge for an informal chat.

Lottie Hostead
Sales Manager
01733 511099

This blog is written by Lottie, Lottie Hostead is Belvoir Estate Agency Peterborough’s Property Sales Manager. Born and raised here she is both a property expert with 10 years experience selling homes in Peterborough and a genuine local. If you’re thinking of selling your home here then give her a call for a free no-obligation valuation