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Help-to-Buy Scheme

Heritage are delighted to announce that they can now offer purchasers assistance with Help to Buy mortgages, the prime purpose of which is to help people with a small deposit buy a house.

With property prices still high, the task of saving up a 20% deposit can be impossible for many first time buyers. The government has recognised this, and has created a scheme to help buyers without a large deposit purchase their first property or move to a new home. Here we’ll explain how the Help to Buy scheme works, showing you if you’re eligible for the scheme and what homes qualify under it.

Do you qualify for the Help to Buy scheme?

To be eligible for help from Help to Buy, you must:

  • Have a deposit of at least 5%
  • Be looking to buy a home worth £600,000 or less
  • Be purchasing a property you intend to live in most of the time (this means you can’t buy a property you intend to let out or use as a second home)
  • There are two parts to the scheme – equity loans and mortgage guarantees. Here we’ll explain both.

Help to Buy scheme – equity loans

Help to Buy equity loans are only available to people who want to buy a new build property. They work like this:

  • The government lends you up to 20% of the property’s value as an equity loan;
  • You’ll need a deposit of at least 5%;
  • You’ll need to get a mortgage of 75% of the property’s value.

If you want to buy a house worth £200,000, it would break down as:

  • A £40,000 loan from the government;
  • £10,000 deposit put down by you;
  • A £150,000 from a mortgage lender.

The benefit to getting an equity loan from the government is that with a larger amount to put down, you’ll hopefully get a better mortgage rate from your lender.

Equity loans – what you’ll have to pay back

The equity loan is interest free for the first five years, from the sixth year onwards you will pay an admin fee. The admin fee will start at 1.75% of the loan, the admin fee will then increase every year by any increase in the Retail Prices Index plus 1%.

Remember, you will be paying these fees in addition to your mortgage repayments and the equity loan from the government will not be decreasing in size (unless you opt to repay part of it early). So, over time the cost of the admin fee could become pretty expensive.

You will need to repay the equity loan in full after 25 years, when your mortgage term finishes or when you sell your home – whichever happens first. You will repay the market value of the loan at the time, rather than a fixed cash amount. In practice, this means:

You take a 20% equity loan to buy a property worth £200,000, or £40,000; When you sell the property, it’s worth £250,000; You repay £50,000 – this is 25% of the new value of your home, not the amount you borrowed; If the property had dropped in value, you’d pay less than you borrowed.

You can also choose to repay part of the loan early in chunks of either 10% or 20% of the total value.

Help to Buy – mortgage guarantees

A mortgage supported by the Help to Buy: mortgage guarantee scheme works in exactly the same way as any other mortgage except that under the scheme the Government offers lenders the option to purchase a guarantee on mortgage loans.

Because of this support, lenders taking part are able to offer home buyers more high loan-to-value mortgages (80-95%).

You will still be fully responsible for your mortgage repayments. So if you have a 5% deposit, you will need to take out and pay back a 95% mortgage.

Example: for a home with a £200,000 price tag

To find out more click here