The Help to Buy scheme is a scheme introduced by the UK government to assist people who are struggling to get onto the property ladder because of extremely high house prices in the UK, thereby helping them to break the cycle of continuously renting. Help to Buy enables those who have limited savings and a smaller deposit to buy their own property, and is a scheme open to all. You do not have to be a first-time buyer to be eligible for Help to Buy – current homeowners are able to use the scheme, too. The scheme offers equity loans on properties up to £600,000 in value. In the 2018 budget, the government stated that the Help to Buy Scheme is coming to an end in March 2023.

Are you thinking of buying your own property using the UK government’s Help to Buy scheme? With Financial Advisor UK’s national network of fully FCA-registered and approved financial professionals, you can be instantly matched with an advisor who meets your needs, and can help you find the best deals available (on mortgages, etc).

How does Help to Buy work?

Help to Buy enables potential homebuyers to purchase a new-build property with just a 5% deposit from their own funds, rather than them having to save up a 10% deposit. They will also be able to borrow an additional 20% of the property price from the government (interest-free) for the first five years. This total brings their deposit to a total of 25%, which means that they only need to take out a 75% mortgage.

After the five year interest-free period comes to an end on the 20% government-funded loan, interest on this loan is charged at a rate of 1.75%, rising in line with inflation, plus an additional 1%. The government loan must be paid back within the deadline of 25 years. If the buyer(s) decide to sell the property, they will need to pay back the 20% loan when they move, along with additional charges for any value the property has made in that time.

To qualify for a Help to Buy equity loan, the property you are purchasing must be worth no more than £600,000. Up until 1 April 2021 (when changes come into force), there is currently no strict criteria depending on income, and anyone can apply. However, the property being purchased must be a new-build, must qualify for Help to Buy through the developer, and must be the only property that the homeowner purchases. Government loans of 20% cannot be used for buy-to-let initiatives.

Help to Buy mortgages

If you want to buy through the Help to Buy scheme, you will need a lender that can offer a 75% mortgage. Do your research and approach high street lenders as well as other institutions to see offers that are available. Finding a mortgage can be a confusing process. If you’d like help finding the best mortgage deal for your financial situation, Financial Advisor UK offers a national network of fully FCA-registered and approved professionals that you can be matched with to receive the best professional advice and who can help you find the right mortgage deal.

Equity loans with Help to Buy

If you cannot save more than a 5% deposit for your dream home, it may be worth taking out the 20% equity loan from the government. With the five-year interest free terms, this should give you enough time to save up a lump sum while helping to keep mortgage repayments affordable. Always consider other options and whether a 95% mortgage (and a 5% deposit from your own savings) is worth doing instead of taking out a government equity loan. Remember that the equity loan has to be fully repaid in 25 years.

Help to Buy ISA

A Help to Buy ISA (Interest Savings Account) can help you to save capital for your dream home. A number of providers take part in this scheme, a list of which can be found here.

A Help to Buy ISA can help you save up a deposit of £1,200, along with an additional £200 per month. The government then helps out by putting in an additional 25% on top of contributions you have made (up to £3,000), meaning that you can save a total of £12,000 in your ISA. In order to qualify for a Help to Buy ISA, you have to meet the following criteria:

• A first time buyer in need of a mortgage
• A UK resident
• The purchased property must be your intended sole residence
• You cannot own any other properties either in the UK or abroad
• You must acquire at least £1,600 in your ISA to claim the 25% government bonus
• You cannot pay into a cash ISA in the same year

For financial advice on Help to Buy ISAs and to be instantly matched with a financial expert who suits your requirements, use Financial Advisor UK’s quick matching service. We offer a national network of fully FCA-registered and approved professionals who can advise on your circumstances and help you make the most of your money.