Find out how a government Help to Buy scheme could let you buy a home with a smaller mortgage deposit.
Help to Buy is a term for a range of government schemes that are designed to help you buy a home from a participating home builder without needing a huge mortgage or deposit.
These schemes vary depending on where in the UK you live.
In England, there’s the Help to Buy: Equity Loan scheme for first time buyers.
For a set term, the government will lend you between 5% and 20% (up to 40% in London) of the purchase price of a new build home.
You’ll need to provide at least a 5% deposit and get a repayment mortgage to cover the remaining property cost yourself.
For example, for a house that’s worth £200,000:
The maximum purchase price of eligible homes depends on where you live – for example, in the East Midlands it’s up to £261,900, but in London it’s ££600,000.
Eventually, yes. The equity loan will be interest free for the first five years – there’s only a £1 admin fee to pay each year – but you start paying the below interest from year six:
There are no monthly repayments for the loan. Instead, you must repay the equity loan in full if you sell your home, pay off your mortgage, you don’t comply with the terms of the loan agreement or when the loan term comes to an end. You can choose to repay all or part of the loan at any time though.
The total amount you pay back depends on the value of your home at the point of repayment, not the amount you borrowed originally.
For example, if the value of a £200,000 property increased by 2%, the home’s new value would be £204,000. This means the 20% equity loan to be repaid would increase to £40,800, even though you only borrowed £40,000 originally.
The Help to Buy – Wales scheme is similar to the one in England. The term of the loan is 25 years and you don’t pay interest for the first five years but you will starting from year six. You can repay the loan whenever
The only difference is that the maximum house price doesn’t vary by location - it’s only for properties worth up to £250,000 no matter where in Wales you live.
The Help to Buy (Scotland) - Affordable New Build scheme closed in February 2021.
The Help to Buy mortgage guarantee scheme closed in December 2016, so you can no longer apply but there are other home ownership schemes available.
If you can’t afford a mortgage on the full price of a property, Help to Buy: Shared Ownership allows you to buy a share of between 25% and 75% of the property value (between 50% and 90% if you live in Northern Ireland) – either with a mortgage or through your savings – and you pay rent on the remaining share. You can buy more shares when you can afford to.
Shared ownership schemes are available in England, Wales, Scotland and Northern Ireland, but the terms and criteria can vary.
The mortgage guarantee scheme was launched by the government in April 2021 and runs until December 2022. It aims to encourage more lenders to offer 95% LTV mortgages on homes costing up to £600,000.
This means you pay a low 5% deposit, and the government acts as a guarantor on the mortgage – so if you can’t keep up with repayments, then the government will cover the cost.
But if this happens you could still end up losing your home, just like with any other mortgage, so it’s important to make sure you can afford it.
Each government will have a range of schemes available to help with mortgages and home ownership, so it’s worth looking around.
You could consider a low-deposit mortgage that’s not part of a scheme - some lenders will consider up to 95% mortgages, though you'll probably have a better choice of deals if you save at least 10% deposit.
There are 100% mortgages, but these tend to be very restrictive and usually require a guarantor.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
PLEASE NOTE: THE FCA DOES NOT REGULATE MOST BUY TO LET MORTGAGES