What is the Help to Buy Scheme?

The Help to Buy scheme was launched in April 2013 to help first-time buyers and others who are generally finding it very hard to move up the property ladder.  

The Government-run scheme runs on the premise that first-time home buyers can secure a property with as little as a 5% deposit. The idea is that an equity loan is offered via the Government, interest-free, for five years - so that potential home-buyers who are struggling can purchase a new home (up to the purchase value price of £600,000). 

The value of the equity loan can be up to 20% of the property price (or 40% if it’s a London property). The remaining 75% of the property is paid for through a repayment mortgage. The equity loan must then be repaid after 25 years (or earlier, if the home is sold before then). 
 

The big advantage of the Help to Buy scheme is that your loan-to-value ratio is reduced, and this gives you access to cheaper rates than you’d otherwise have access to with a 95% mortgage.

It should be noted that the scheme applies to ‘new build’ properties only, in England and Wales. There are also similar schemes (with their own terms and conditions) running in Scotland and Northern Ireland.  
 

What interest will you pay?

After the first five years with your interest-free loan, you’ll be charged at an interest rate of 1.75%.  

And as time goes on, the rate will rise at the rate of inflation (in line with the Retail Prices Index), with 1% on top. So in summary: 

Years 1 to 5: No interest payable 
Year 6: 1.75% of the loan amount 
Year 7 and beyond: 1.75% + RPI level + 1% 

Any interest you pay will not go directly towards paying off your initial loan 

 

Helpful things to know about the scheme

• It was due to end in 2021, but the Government has confirmed that it will extend the end date to 2023 (for first-time buyers only)
• From 2021, the maximum value of homes which can be bought may be reduced somewhat due to planned ‘regional price caps’
• You won’t be eligible to apply for the Help to Buy scheme if it’s for a second home, or a buy-to-let property
• If you sell the property, the Government will take the same percentage of the final sale price as you opted for when you originally took out your equity loan (this means that the two amounts may not necessary be that similar in value)
• If you want to, you can look to repay some or the entirety of the equity loan early, however, this will only be accepted if the minimum loan repayment matches at least 10% of your home’s current market value

For more information about the Help to Buy scheme, visit the official Government website.