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How does Help to Buy work?

If you’re looking to purchase your first home or you’re interested in moving to a new home, Help to Buy could be an option for you. It’s likely you’ve heard of this term before - but you might be wondering what it means and how it works.

To find out more about Help to Buy and how you could benefit from it, keep reading.

What does Help to Buy mean?

In short, Help to Buy refers to a range of schemes that have been introduced by the government to make purchasing a home that little bit easier. Primarily aimed at first-time buyers, these schemes offer financial assistance and could be just what you need to get onto the property ladder, putting you one step closer to owning the home you’ve always dreamed of.

The three main Help to Buy schemes are:

Buying Through Shared Ownership

Shared Ownership provides you with the chance to buy a share of the home you’re moving into. The share you purchase must be between 25 and 75 per cent of the property’s value. You would then need to pay rent on the remaining portion, with the opportunity to buy a bigger share later on. The Shared Ownership scheme is ideal if you can’t quite afford the mortgage on 100 per cent of a home.

Help to Buy Equity Loan

With the Equity Loan scheme, the government lends you up to 20 per cent of the cost of a newly built property. To cover the remaining 80 per cent, you’ll need to have a five per cent cash deposit and take out a 75 per cent mortgage. For the first five years of owning your home, you won’t be charged any fees on the 20 per cent loan.

Help to Buy ISA

Opening a Help to Buy ISA might be the ideal choice for you if you’re saving to buy your first home. Under this scheme, you can deposit a lump sum of up to £1,200 upon opening the account, and after this you are allowed to transfer up to £200 per month. The government will then add 25 per cent to your savings up to a maximum contribution of £3,000. To receive this amount, you will need to save £12,000.

Who is eligible for Help to Buy?

So that you can take advantage of the schemes offered under Help to Buy, you will need to meet certain eligibility criteria. It’s important to note that these criteria can vary between each scheme, so it helps to understand the differences.

For instance, to qualify for the Shared Ownership scheme, you must be at least 18 years old and have an annual household income of less than £80,000, or less than £90,000 if you live in London. You can buy your home through this scheme if you’re a first-time buyer or if you previously owned a property but you cannot afford to buy a new one. If you are an existing shared owner wanting to move, you will also qualify for the Shared Ownership scheme.

If you’re interested in the Help to Buy Equity Loan, you must be a first-time buyer or a homeowner who wishes to move. To use this scheme, you must also make sure that the property you want to buy is newly built and costs no more than £600,000. You must not own any other property at the same time as buying your new home, and it’s important to note that you cannot enter a part-exchange in regards to your old home or sublet your new home.

To open a Help to Buy ISA, you will need to meet a specific set of criteria. For example, you must:

              ● be aged 16 and over, and be a resident of the UK
              ● have a valid National Insurance number
              ● be a first-time buyer
              ● not have another cash ISA which is active in the same tax year. (If you do, you may have to take extra steps to transfer up to £1,200
              of your savings into a Help to Buy ISA.)

You must also make sure that the property you’re buying:

             ● has a price tag of less than £250,000, or £450,000 if you’re buying in London
             ● is the only property you own and it is where you intend to live
             ● is purchased with a mortgage

Becoming familiar with the eligibility requirements for the different Help to Buy schemes is crucial if you’re interested in using one of them to purchase a property. You will be able to find out more about the criteria for each of the schemes online.

 

Can Help to Buy be used on older homes?

Unfortunately, not all of these schemes can be used when you’re buying an older home. For instance, the Help to Buy Equity Loan is only available against new build properties that cost up to £600,000.

On the other hand, the Shared Ownership and ISA schemes can be used if you are looking to purchase either a newly built or an existing property.

How do you pay Help to Buy back?

So that you don’t land yourself in financial trouble, it’s vital that you understand the repayment terms of your Help to Buy scheme.

For example, in regards to the Equity Loan scheme, you will not have to start paying interest on the loan itself until you’ve had it for five years. From the sixth year upwards, you will be required to start paying interest, with the rate increasing each year at the Retail Prices Index measure of inflation.

When it comes to the Shared Ownership scheme, you will be required to make repayments on your mortgage. This amount will depend on the value of the share you purchase, as well as how much of a deposit you put down, the length of your remaining mortgage term and the interest rate. You will also be required to pay rent for the share of the property that you do not own.

Since the Help to Buy ISA is a savings account, you are not required to make any repayments. However, bear in mind that in order to receive a government bonus, you'll need to have saved at least £1,600 into your ISA. This is because the minimum government payment is £400.

Can I use Help to Buy twice?

Since you must be a first-time buyer to take advantage of the Help ISA scheme, you will not be able to use this type of account more than once.

However, the Shared Ownership scheme is available for first-time buyers and those who have previously owned a property but are unable to afford a new one - as well as existing shared ownership homeowners who want to move. This means that you could use this particular scheme on more than one occasion.

Similarly, the Help to Buy Equity Loan scheme is available to first-time buyers and those who own a home but are looking to move, meaning that you may be able to take advantage of this scheme more than once too.

Before you apply for one of these schemes, it’s important that you fully understand the terms and conditions, as well as how it will impact on your financial situation. If you’re looking for further advice on any of these Help to Buy schemes, don’t hesitate to get in touch with our team.

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