It isn’t ever going to be easy to get your foot on the property ladder. This is especially true for first-time buyers, who may find it difficult to make a breakthrough with complicated chains and expensive deposits! You may have heard of a scheme or two which are run by the UK government to help people purchase their first home easier than they would out in the wild. These are Help to Buy schemes, and they really could make all the difference.
But what is Help to Buy? How does it work? Will it be the right option for you? In this guide, I’ll be dipping into the scheme and will look at scenarios where it may benefit you the most. If it is your first time buying a property and you are saving up for a deposit, it is always a good idea to consult Help to Buy first!
What is Help to Buy?
Let’s look at the basics. It’s a government scheme where you can get a loan from UK authorities to help pay for a deposit. Deposit fees can often be very tricky to save up for. Therefore, the government is willing to help first-time buyers with up to 20% of the cost of their purchase.
This means you will only have to pay a 5% deposit when you start making arrangements. For many people, this will make a huge difference. There are national and regional differences in the scheme, too, which I will cover in a little more detail a bit further down.
How Does the Help to Buy Scheme Work?
The Help to Buy scheme operates in the form of equity loan-lending. This means, depending on the value of the property you wish to purchase, the government may be able to support you with up to 20% of the total cost. If you live in London, this doubles to 40%, as a result of higher prices and cost of living differences.
The government will loan you, for example, £50,000 towards your mortgage if you are buying a property worth £250,000. This means you will still need to pay a deposit of 5%, and you will need to clear the remaining 75% of your mortgage over a time period as agreed with your lender.
If you sell your property, you will need to pay the loan back. Otherwise, you will need to settle the equity debt within 25 years. This should be plenty of time for many people to make financial arrangements.
However, if you sell your home for more than the value you bought it for, you’ll need to pay the government 20% of the new cost.
What is Help to Buy Scheme Interest?
As with all credit, there will be interest which you need to pay on top of your eventual repayment to the government. For the first five years of your loan, you won’t be expected to pay any extra interest on top.
By the sixth year, however, you’ll be charged 1.75%. Beyond this, up to year 25, you’ll be charged that rate plus inflation and a further 1%. It is always worth remembering that equity loans of this nature will rank up interest the longer you borrow for. Sadly, it is simply to be expected!
How Do You Qualify for Help to Buy?
One of the first questions many people ask with regard to the scheme is, of course, how do you qualify for help to buy? The good news is, the government is continuing to support the scheme up to 2023 at the very earliest. However, there will be certain restrictions imposed depending on how you wish to use your loan.
Qualifying for Help to Buy is, however, otherwise fairly simple. The government requests that you have a national insurance number, that you are 16 years of age or older, and that you are UK resident who is buying a home for the first time. You must also bear in mind that if you are taking out a Help to Buy ISA, you must not keep another ISA active during the same tax year period.
What is a Help to Buy ISA?
A Help to Buy ISA is a great way to save up for a deposit. It will allow you to continue saving money, while the government matches your contributions with a bonus between £400 and £3000. You’ll be able to claim a government bonus once you have proof of closure on the account.
How does Help to Buy ISA work for first-time buyers? It is similar to a standard savings account, apart from it is for the sole purpose of saving up for a property, and you’ll be able to claim government assistance along the way. I’ll have a little more detail on this for you further down.
Do also be careful that you’re only intending to buy one property. You must also clearly intend to live in the home you’re buying, too! Of course, it should also always arrive with a mortgage attached.
Is Help to Buy for New Builds Only?
One of the big changes made to Help to Buy in recent years is the fact that you can now only use the scheme to help purchase properties which are newly built. Can you get Help to Buy on old houses? Sadly not – at least, not for now.
This is a restriction which has been brought in along with the fact that only first-time buyers may benefit from the scheme. Therefore, to be able to take advantage of the grant, you should be thinking about looking at new build estates and more besides.
How Much Can I Borrow Help to Buy?
The government will support you via the Help to Buy scheme providing you buy a property that is no more than £250,000 in value. This value increases to £450,000 in London for reasons we’ve already discussed. This, unfortunately for some, means you can’t choose a stately home or mansion and expect the government to bail you out.
What you can expect, however, is for the government to help you purchase a simple new build property at a reasonable rate.
How Much Can I Put in a Help to Buy ISA?
You can deposit lump sums of up to £1,200 when you first open an account, but after that, it is recommended that you deposit £200 per month. If you wish to claim the government bonus available, you should be saving at least £1,600. You’ll need to have saved £12,000 to be able to claim the maximum bonus available of £3,000.
However, a great way for you to increase the cash you receive is if both you and your buying partner both join the scheme. If you are both first-time buyers, you will be able to claim up to £3,000 each by using a Help to Buy ISA.
Therefore, limits on how much you can pay in overall will depend on your bank. Do make sure you read and digest any terms and conditions which come along, as these will help you to understand what you can expect from upper saving, as well as how much you could be entitled to in terms of government award.
When Does Help to Buy End?
Help to Buy is a scheme which only really ends when you’ve paid off your loan. This may take you up to 25 years to pay off, or sooner, if you choose to sell your property. If you sell a home you’ve been able to buy through the scheme, once again, be ready to give the government 20% of the total sale price.
When it comes to closing down ISAs, however, things are a little bit different. Read on to learn more below.
How to Close a Help to Buy ISA
If you’re looking to close a Help to Buy ISA, the various terms in play will differ from bank to bank. You should always read the contract terms closely before you take out this type of account. However, closing is very important in many cases, as it will help you to claim your government bonus.
With a statement of closure, for example with Nationwide, you will be able to supply evidence to the government of your savings. You will then be able to claim funds from them based on the amount you have been able to accrue.
You’ll need help from a solicitor or alternative who can request that your bonus be claimed. You’ll need to make sure you put your claim in before the account is closed, and before the process finishes.
Regional Variations on Help to Buy
As mentioned earlier in this guide, Help to Buy in this case will only cover English homes. The rules are slightly different when it comes to first-time buying in Scotland, Wales and Northern Ireland. Let’s take a quick look at what you can otherwise expect.
Help to Buy in Scotland
Scotland Help to Buy schemes allow you to claim up to 15% of the full purchase price on a new build property. You’ll also only be able to enter into the scheme if the home builder you are buying from is partnered as part of the scheme. The upper threshold for the scheme in Scotland is £200,000, meaning you will not be supported on Help to Buy if your property is worth more than this.
Help to Buy in Wales
The Welsh system actually has a higher threshold. You can enter into the scheme on homes worth up to £300,000, and you will be supported by up to 20% of your total home price (deposit and mortgage included). As with Scottish rules, only certain builders, developers and firms will be able to support you.
Help to Buy in Northern Ireland
Northern Irish homes can be offered up to 15% in the scheme, and you’ll also be able to take advantage of Help to Buy ISAs in the region, too. Once again, as with England, you’ll be able to claim £3000 per first-time buyer.
Help to Buy Mortgage Calculator – How Much Can I Borrow?
If you’re interested in seeing how much you could borrow from a Help to Buy scheme, it is always a good idea to seek out a Help to Buy mortgage calculator. By entering in simple details about the property you wish to buy, online tools will help you analyse how much you should have to pay in terms of a deposit, and how much interest you will need to pay on top of your equity loan.
A good online calculator will help you work out the total amount of money you will need to pay back on your loan, as well as any interest which may arise. Online calculators will also help you work out how much you’ll need to pay in terms of your eventual mortgage (once your deposit and government assistance have been taken off).
It is always worth asking a financial advisor or banking expert to help you navigate the fees and interest involved with Help to Buy. Online calculators can really help to break things down. However, it is still worthwhile speaking to a human being via appointment if you can!
Is Help to Buy Worth It?
It’s a great little scheme which has helped hundreds of thousands of people to purchase their first property. The scheme may not extend to old or existing housing, however, if you are interested in buying a new build home at a reasonable rate, there are plenty of benefits to making enquiries.
If you’re struggling to afford your first home deposit, certainly look into Help to Buy and Help to Buy ISAs. It’s worth taking advantage of government support now, as it’s not clear what will happen to the scheme after 2023. Act now if you’re interested!