Help to Buy Explained

If you’re reading this, you’re probably looking to buy your first home, we appreciate it can be challenging journey to become a homeowner which is why Genius Mortgages are committed to giving buyers helpful information, turning that journey into an exciting experience!

What is a Help to Buy Mortgage?

We will be focussing on the Help to Buy (Equity loan) as this the scheme which has been extended to March 2023. The government will lend you up from 5% to 20% (40% in London) of the purchase price. The scheme is only available for first time buyers and if you purchase a new home from a registered housebuilder. So for example if you’re looking for the max 20% equity loan (non-London purchase), it would comprise of a 5% deposit, a 20% Equity Loan and the remaining 75% mortgage.

Maximum Purchase Prices

Keep in mind this limitation of this government assistance scheme as it’s only available for homes up to a certain value, see the max purchase prices below:

What does the Equity Loan cost?

First five years…

The equity loan bears 0% interest for the first 5 years of the loan and a £1 monthly management fee paid via direct debit.

From year six…

In addition to the management fees, the interest of 1.75% will be applied to the equity loan and the interest rate will rise each year in April by the Consumer Price Index (CPI), plus 2%.

Upon full repayment of Equity loan…

If the property increases in value at the time the Equity loan is paid off, the loan repayable becomes higher as a percentage of the increase is payable.

So if your home increases in value, you’ll pay more.

If your home reduces in value, you’ll pay less.

When do I have to pay the loan back?

It depends on the scenario, let us look at some examples:

• When you sell your home

• When your repayment mortgage has been paid off

• End of the equity loan term

• If the terms of the equity loan are not followed, the equity loan may become repayable.

Do I face any restrictions by using this scheme?

Yes. The Help to Buy Equity Loan scheme is only available through certain developers who build new homes, so if you prefer older homes; it may be best to consider other schemes.

Ground Rent and Service Charge

Always enquire into the lease terms and conditions, especially when it comes to charges. Developers can be known to flaunt expensive monthly costs and even including conditions in the lease where the monthly costs rise faster than inflation. This can cause problems with getting a mortgage arranged as this is something which impacts re-saleability.

Can I let out my Help to Buy property at any point?

Under no circumstances you are allowed to let the property whilst the equity loan is still secured on the property. For example, if you owe £100,000 to your mortgage lender and further £25,000 is the equity loan, you would need to pay the £25,000 back so there is no equity loan outstanding.

Even once you've paid this, you would need permission from your residential mortgage lender to let the property, often referred to as a "consent to let".

Alternatively, you can remortgage and consolidate the residential mortgage and equity loan onto a BTL mortgage, if your total loan-to-value is above 75% LTV; you may find it difficult to remortgage onto a BTL. Be careful of any potential early repayment charges if this is something you wish to consider.