Help to Buy Scheme Explained
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The Help to Buy scheme is a government-backed initiative designed to help people, particularly first-time buyers, get onto the property ladder. Whether you’re buying your first home or looking to move, understanding how this scheme works is essential for making the most of the benefits available to you.
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Written by:
Alison Gibson
Ascot Mortgage Expert
Last Updated:
06.11.2024
Written by:
Alison Gibson
Ascot Mortgage Expert
Last Updated:
06.11.2024
What's in this Guide
In this guide, we will cover everything you need to know about the Help to Buy scheme, including how it works, how to pay back your equity loan, and what to consider if you’re looking to remortgage. We’ll also explore what happens when you sell your home and how changes in property values might affect you. If you’re unsure about any aspect of the Help to Buy mortgages, this guide is here to provide clarity and help you make informed decisions.
What is the Help to Buy Scheme?
The Help to Buy scheme is a government initiative aimed at helping people buy a home with a smaller deposit. Through the scheme, you can borrow up to 20% (40% in London) of the property’s value as an equity loan, which is interest-free for the first five years. This can be particularly beneficial if you’re struggling to save for a large deposit or if you’re a first-time buyer trying to enter the property market.
How Does the Help to Buy Scheme Work?
Here’s a step-by-step breakdown of how the Help to Buy scheme works:
- Deposit: You need to provide a minimum deposit of 5% of the property’s purchase price.
- Equity Loan: The government lends you up to 20% of the property’s value (40% in London), which is interest-free for the first five years.
- Help to Buy Mortgage: You’ll take out a Help to Buy mortgage from a lender to cover the remaining 75% of the property’s value.
Mortgage Affordability Calculator
Before you apply for a Help to Buy mortgage, it’s important to know how much you can afford to borrow. Using our mortgage affordability calculator can help you understand what your monthly payments might look like based on your income for all applicants.
Mortgage Affordability Calculator
Use this calculator to determine how much you could potentially borrow for a mortgage, based on the typical salary multiples used by most UK lenders.
Get expert advice immediately if...
- You need to borrow more than 4.5 times your annual income
- You are only using one income on your application
- You earn income through sources such as Benefits, Commission or Rental income
- You consider yourself to be on ‘low’ income
If one or more of the above apply to you, it’s important to get expert advice before making an application. The right broker can help maximise your chances of approval based on your circumstance.
Paying Back Your Help to Buy Equity Loan
After the initial five-year interest-free period, you’ll start paying interest on your equity loan. The Help to Buy interest rates start at 1.75% of the loan’s value, increasing annually by the Retail Price Index (RPI) plus 1%. It’s important to plan for these payments, as the cost can increase over time. You can also choose to repay the equity loan in full or in part at any time, known as Help to Buy redemption.
What Happens When I Sell My Home if I've Used Help to Buy?
If you sell your home and have used the Help to Buy scheme, you’ll need to repay the equity loan. The amount you repay is based on the market value of your home at the time of sale, not the original loan amount. For example, if you borrowed 20% of the property’s value and the value has increased, you’ll repay 20% of the current market value, which may be more than you initially borrowed.
What Happens if I Want to Remortgage?
Remortgaging with a Help to Buy mortgage can be a bit more complex than with a standard mortgage. If you want to switch to a new mortgage deal or lender, you’ll need to get approval from the Help to Buy agent and your current lender. It’s important to consider the implications, especially if you’re thinking about borrowing more money against your home.
What Happens if I Want to Remortgage and Borrow More Money?
If you’re looking to remortgage and borrow more money, perhaps for home improvements or to consolidate debts, you’ll need to ensure that the new mortgage meets the criteria set by the Help to Buy scheme. The amount you can borrow may be limited by the scheme’s rules, and your new lender will need to agree to the terms.
Based on a mortgage of £300,000 at 75% LTV and 25 years Today’s best buy mortgages
Latest mortgage best buys
See all mortgage best buysSpeak with Us Interest Rate Mortgage Type Monthly Repayment Amount Total Fees Max LTV 
4.14% Fixed £1,219 £30 75% 4.18% Fixed £1,216 £1,025 75% 4.18% Fixed £1,215 £999 75% 4.20% Fixed £1,220 £1,403 75%
What Happens if Property Values Fall?
If property values fall and you need to sell your home, the amount you repay on the equity loan will still be based on the percentage of the property’s value at the time of sale. This means that if your property’s value decreases, the amount you repay could be less than the original loan amount.
Getting Help from a Mortgage Broker
Navigating the Help to Buy scheme can be complex, and getting the right advice is crucial. A mortgage broker Ascot Mortgages can guide you through the process, helping you find the best Help to Buy mortgages available and ensuring you fully understand the terms of the equity loan. We can also assist with remortgaging, making sure you’re well-informed at every step.
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FAQ
01/ What is the Help to Buy scheme?
The Help to Buy scheme is a government initiative designed to help people buy a home with a smaller deposit by providing an equity loan of up to 20% of the property’s value.
02/ How does Help to Buy work?
The scheme allows you to buy a home with a minimum 5% deposit, an equity loan from the government, and a Help to Buy mortgage for the remaining amount.
03/ What is a Help to Buy mortgage?
A Help to Buy mortgage is the mortgage you take out to cover the portion of the property’s value not covered by your deposit or the government’s equity loan.
04/ How Help to Buy works after 5 years?
After 5 years, you start paying interest on the equity loan. You can choose to repay the loan in full, make partial payments, or continue paying the interest.
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