Help To Buy Mortgages Explained

With the Help to Buy scheme shortly due to close, naturally there’s a flurry of interest from first-time buyers. If you’d like to know more about equity loans and you need to learn the essentials quickly, you’re in the right place.

In this in-depth guide we’ll explain how the scheme works, who is eligible, and how to get a mortgage once your equity loan has been approved. If you need any more information, we can put you in touch with a Help to Buy expert.

What is Help to Buy?

Explained simply, Help to Buy is a government scheme to help first-time buyers with small deposits get a more affordable mortgage. The government provides an equity loan for a portion of the property price, which is interest-free for the first five years, so that you can get a smaller, cheaper mortgage on the remaining portion of the property.

There are some limitations:

• The property must be your first home
• It must be in England (though both Wales and Scotland have their own Help to Buy schemes)
• It must be a newly built property from a participating developer

If you’re buying in London, you can get an equity loan of up to 40% of the property value (meaning you’ll need a mortgage for up to 55%). Outside of London, you can get an equity loan of up to 20% of the property value (so you’ll need a mortgage of up to 75%).

How it works

To explain the scheme in numbers, let’s use the example of buying a £200,000 home.

• You’ll need a 5% deposit – £10,000
• The government will provide a 20% equity loan – £40,000
• You’ll need a mortgage for 75% – £150,000

Your mortgage repayments will be lower for two reasons:

• Your mortgage is only £150,000, whereas without the scheme you’d need a £190,000 mortgage
• Mortgage rates are typically lower for 75% mortgages than 95% mortgages, so you’ll pay less interest on the loan

Since the equity loan is interest-free for the first five years, you can be pretty sure you’ll save money for these five years (although you’ll pay a £1 monthly management fee).

When is the deadline?

The final deadline to apply is 31 October 2022. Within four working days, you will be given Authority to Proceed. From this point, you have three months to get your mortgage approved and exchange contracts. Your date of completion must be on or before 31 March 2023, when the scheme ends.

What is a Help to Buy mortgage?

In addition to your equity loan and deposit, you’ll need a mortgage. Less than half of UK lenders can provide mortgages that are compatible with Help to Buy equity loans, so their products are called Help to Buy mortgages.

Help to Buy mortgages are available in all the same variations as standard residential mortgages, so you can get a fixed-rate mortgage, a tracker mortgage, or a discounted variable-rate mortgage.

Eligibility criteria

To access the Help to Buy initiative, you must be:

• 18 or over
• A UK resident
• A first-time buyer

Benefits and downsides

How much can you borrow?

Let’s look at the Help to Buy equity loan first, and then how much you can borrow for your mortgage.

Help to Buy equity loan

Each region of the UK has a price cap, i.e. a limit on the total value of the property you can buy with Help to Buy, which is 1.5x the average forecast first-time buyer price for that region. The equity loan you can get in London is larger than outside of London.

So, the maximum equity loan in different regions is as follows:

Help to Buy mortgage

You can get a Help to Buy mortgage for up to 4.5x your annual salary (or, if you’re buying with another person, your combined salaries). For example, if your annual salary is £30,000, you could get a Help to Buy mortgage of up to £135,000. If you and your partner’s combined salaries are £60,000, you could get a Help to Buy mortgage of up to £270,000.

This table shows the salary needed to get a 55% or 75% mortgage of the maximum regional price cap:

Work out your maximum borrowing

If you’d like to see a more precise estimate for how much you could borrow, enter your salary (and your partner’s, if you’re buying with someone else) into the calculator below.

How to get a Help to Buy mortgage

There are three steps to successfully securing your mortgage before the deadline.

Lenders that offer Help to Buy mortgages

Many mainstream and specialist lenders offer Help to Buy mortgages. These include Nationwide Building Society, Accord Mortgages, Barclays Bank, Aldermore, NatWest Bank, and Halifax Building Society.

Which lender provides the best Help to Buy mortgage depends on your personal circumstances. Your source of income and credit history are two major factors, as different lenders may take different views on your creditworthiness. It’s best to speak to a broker if you need help comparing mortgages.

Alternatives to consider

If you decide that Help to Buy isn’t right for you, you might consider two other government schemes:

Selling a home bought through the scheme

When you sell your home, you’ll need to pay off the government equity loan. The amount you owe is not necessarily the amount you borrowed. If you borrowed 20% of the purchase price of the property, you owe the government 20% of the selling price of the property.

For example, if you bought the property for £200,000, with an equity loan of £40,000, and you are selling the property for £220,000, you owe the government £44,000. Your house has increased in value by 10%, so the repayment due has increased by 10% too.

When you want to sell your home, you’ll need to notify Target, the agency that handles administration for HCA, the organisation that provides the loan. You’ll need to arrange a surveyor’s valuation and send this to Target, along with the offer you’ve received. You’ll pay an admin fee of £200.

Remortgaging after Help to Buy

Remortgaging a home you bought with help to Buy can be difficult. Very few lenders offer Help to Buy remortgage deals, particularly if you have not yet paid off your equity loan. Those that do might charge higher fees and rates to Help to Buy customers. You will also need to pay a remortgage fee of £115 to the Help to Buy scheme.

So, you’ll need to consider if the costs of remortgaging outweigh the costs of sticking with your current mortgage once it has deferred to your lender’s standard variable rate. This maths can be complicated, so you may want to speak to a broker to get their expert opinion.

To find out more see our dedicated article on remortgaging after using a Help to Buy scheme.

Get matched with a Help to Buy specialist

Not all brokers can help you proceed with a Help to Buy mortgage application. You’ll need a broker who has ‘whole of market’ access, and it will be extremely helpful if they have previous experience with the scheme.

We work with numerous brokers who are Help to Buy specialists. If you’d like their expert advice, we can put you in touch for a free, no-obligation chat. First, we’ll just need a few details about you and your mortgage. To get in touch, either call us on 0808 189 2301 or enquire online.