Help to buy is a government backed scheme which has been introduced into the mortgage market to help people who are struggling to save for a deposit for their first home or for those with limited equity who are looking to move up the property ladder.
There are two key parts to the Help to Buy scheme:
Equity Loan options (including London) – How it Works
The first element of the Help to Buy scheme was launched on 1st April, 2013 to help purchasers buy new build homes. The scheme is available to both first time buyers and home-movers, but it is restricted to new-build homes. The Equity Loan part only applies to properties worth up to £600,000 and must be the purchasers only residence. This scheme is available until 2020.
The buyer is expected to raise 5%, whilst the government will provide a further loan of up to 20%. This part of the loan is provided via the Homes and Communities Agency (HCA). The benefit to you is that you now have a deposit of up to 25% which will enable you to enjoy the more attractive mortgage rates offered by those lenders who are participating in the scheme.
Even better news is that the 20% commitment from the government is interest free for the first five years. And then in year six, the charges will be at 1.75% which will then increase at a rate of 1% of that figure as well as any increase in inflation (in line with the Retail Prices Index (RPI)) every year thereafter.
You can repay the equity loan without charges at any time. However, if you do not repay the 20% provided by the government under the equity loan scheme, when you come to sell the property the government will reclaim it’s 20%.
Mortgage Guarantee – How it works
The second element of Help to Buy has been designed for the purchase of an existing or new build home for both home-movers and first time buyers. This part of the government scheme is designed to assist thousands of potential homeowners to purchase their property with a low deposit. There are several lenders offering the new Help to Buy 2 mortgage scheme to customers, ranging from 80% to 95% of the property’s value.
These government backed mortgages will help thousands of people to buy their new or existing homes, up to a maximum value of £600,000.
If you cannot get on the property ladder, or you are unable to move to a new home, because you cannot afford the large deposit required, often up to 20%, then this mortgage could be right for you.
Help to Buy London - London Equity Loan 40%
The Help to Buy scheme is an equity loan provided by the Government. They lend you up to 40% of the cost of your new build home, so you will need a minimum 5% deposit and a 55% mortgage to make up the rest.
For this scheme you must have a mortgage, which will be a first charge, as the equity loan can only be a second charge. The equity loan is for a maximum of 25 years or before if the property is sold or the mortgage is redeemed, whichever term is the shorter of the two.
You will not be charged any fees on the 40% loan for the first five years of owning your home. From year six, a fee of 1.75% is payable on the equity loan, which rises annually by RPI (Retail Price Index) inflation plus 1%.
Help to Buy: Equity Loan 20%
Help to Buy: Mortgage Guarantee
Getting a Help to Buy mortgage can be difficult and getting a good mortgage rate can be even harder! The expertise of a mortgage broker could be priceless. The difference between a standard mortgage variable rate of 4% and a new mortgage deal of 2% is £103.99 per month* that’s £1,247.88 per year or £31,197 over 25 years!
Whatever your situation, give us a call or submit your details for a callback.
*Illustrative example based on a borrowing amount of £100,000, over a term of 25 years.