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        Help to Buy Mortgages

        Looking at a Help to Buy mortgage? Whether you have bad credit or just want a basic comparison, find out if this type of mortgage is right for you in our guide!

        First of all, are you looking for a ‘Help to Buy’ mortgage?

        No impact on your credit score

        Author: Pete Mugleston - Mortgage Expert, MD

        Updated: March 23, 2022

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        Important

        ???? *UPDATE 26/05/2023: The deadline to apply for a Help to Buy: Equity Loan has passed and the scheme has ended. For information about the best alternatives to Help to Buy, head over to our guide to low deposit mortgages. ????

        Saving up a deposit to take that first step onto the property ladder can be a lengthy process. Offering a little jumpstart to first-time buyers, the UK Government’s Help to Buy equity loan scheme supports those with as little as 5% of a deposit saved by adding some money to the savings pot. What does that mean and what’s involved?

        This guide will explain how the scheme works, what it means for mortgage applications, and how to apply.

        What is the Help to Buy equity loan scheme?

        A Help to Buy equity loan is an amount you can borrow from the government to help you put down a bigger deposit when applying for a mortgage, but note that this only applies to new build properties. You’d need to have at least 5% of the property’s value already saved. The government can then add between 5% and 20% as an equity loan, meaning you’ll then have a 25% deposit.

        The remaining balance would be covered by a mortgage and having a good-sized deposit makes you more favourable to lenders. That translates into more lenders to choose from and access to better rates.

        This scheme, in its third phase, is running until March 2023 in England. Before you apply, it’s advisable to seek some specialist advice so you can work out the correct amount of loan to apply for and how you plan to pay it back.

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        How much can you borrow?

        The maximum equity loan available from the government is 20% of a property’s value, or 40% if you’re looking to buy in London. That 20% can’t exceed a total of £120,000, or £240,000 if in London, but there are other variables to factor in.

        Before we discuss these variables, you can try our Help to Buy calculator below to get a rough idea of your maximum borrowing and affordability.

        calculator icon

        Help to Buy Mortgage Calculator

        Our Help to Buy calculator can tell you whether the mortgage you need is affordable with your equity loan amount factored in.


        Enter an amount in pound sterling
        £
        This must be at least 5% of the purchase price
        £
        Deposit cannot be more than property value
        Deposit too high
        Deposit must be at least 5% of the purchase price
        Enter an amount between 5% and 40% of the purchase price

        Help to buy loan value:

        Mortgage requirement:


        How much can I borrow?

        Enter the total income for all applicants
        £

        Lower range borrowing:

        Higher range borrowing:

        Your maximum borrowing is unlikely to match the property price when combined with your deposit funds and equity loan. Speak to a broker to find out what options are available.

        Now that you have a rough idea of your maximum borrowing with your Help to Buy equity loan factored in, it's a good idea to speak to a mortgage broker who specialises in the scheme. They can provide you with bespoke calculations and make sure your get the best deal with the time comes to apply for your mortgage.

        Important: Remember that calculators only provide approximate figures as they can’t consider your individual circumstances. If you’d like a more accurate number, our broker matching service can see you connected to an expert who can make that calculation for you.

        Also bear in mind that the following factors can impact your maximum borrowing…

        Regional caps

        Depending on where you’re looking to buy, this scheme also imposes limitations on the maximum price of a property. If you’d like to buy a property worth more than the caps listed below, this wouldn’t be the scheme for you, but you could consult with a mortgage broker to see what other government initiatives you might qualify for.

        Region Property value
        North East £186,100
        North West £224,400
        Yorkshire and the Humber £228,100
        East Midlands £261,900
        West Midlands £255,600
        East of England £407,400
        London £600,000
        South East £437,600
        South West £349,000

         

        Who is considered eligible?

        In order to apply for the Help to Buy equity loan, you must be:

        • A first-time buyer – Previous iterations of the scheme allowed existing homeowners to apply but, in this latest phase, only those who haven’t bought a property or piece of land prior are eligible. You also won’t qualify if you’ve had access to a form of sharia mortgage finance and cannot use Help to Buy twice now that it’s entered Phase 3.
        • Buying a new build property – The developer you buy from must be a registered Help to Buy builder.
        • Buying a primary residence – Under this scheme, you can’t buy to let. That’s not to say you can’t rent the property out in the future but your Help to Buy equity loan would need to have been paid back before this can happen.
        • Be buying a property valued within regional property caps – There are no stipulations as to how large or how many rooms a property has to have but it must be valued at less than the regional caps.
        • Be creditworthy: While it’s possible to get a Help to Buy mortgage with bad credit, you’ll need to approach the right lender. What is considered creditworthy can vary from one mortgage provider to another, and if your bad credit is classed as ‘severe’, you might need specialist advice to get approved.

        How to buy a property with Help to Buy

        If you think you’re eligible and want to get started on buying a property with the Help to Buy scheme, here’s what to do…

        1. Find a property. Make sure that the builder you’re looking to buy from has the Help to Buy logo on their website. You can then reserve a property by paying £500 and receive a reservation form in exchange.
        2. Connect with a broker. As a one-to-one expert and guide, they’ll be able to confirm your eligibility and calculate what percentage of equity loan to apply for and how much of a mortgage you’ll need. They’ll also use their knowledge, experience and lender contacts to make sure you get the best deal. This is also the time to find a solicitor.
        3. Apply for the equity loan – A broker will help you fill out a Property Information Form on the government website. Confirmation of the completion of that form along with the builder’s reservation form will then need to be emailed to your local Help to Buy agent, details of which are on the government website.
        4. Apply for a mortgage – If you’ve been approved for the equity loan, you’ll receive what’s called an Authority to Proceed document from the agent, usually within 4 days of applying. This then needs to be shared with your broker and solicitor so that you can use it to apply for a mortgage to cover the remaining amount of the property’s value. A broker will recommend a lender likely to give you a good deal based on your circumstances and one that works with the Help to Buy scheme. Lenders will then assess your incomings and outgoings, your age and credit history as well as the deposit you’re putting down.
        5. Complete the legalities – Once you’ve been approved for a mortgage, there will be paperwork for you and the solicitor to complete and 5% of your deposit will need to be paid. Once contracts have been exchanged, you then pay the remaining figure. The lender will pay the builder the full amount of the mortgage and the agent will pay the equity loan to the builder. You can then move in.

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        Help to Buy equity loan mortgage providers

        A lot of major lenders are open to offering mortgages that include a Help to Buy equity loan, including TSB, Barclays and Nationwide, but some, such as HSBC and Halifax, have opted out. When it comes to smaller, more localised lenders, it’s also a mixed bag. To save time sifting through who will accept what, it’s advisable to work with a broker who knows the Help to Buy mortgage market. Not doing so increases the risk of a rejected application, which can impact your credit score and future applications.

        Repaying an equity loan

        Technically, you don’t have to pay back the loan until either you sell the property or reach the end of the 25 year mortgage term. However, it’s advisable to pay off the loan in under a decade in a series of one-off payments to avoid ever-increasing interest rates.

        In the first five years, there’ll be no interest to pay but, after that, there’ll be an additional 1.75% in year six and each April after the amount will increase to 2% plus the Consumer Price Index. This can soon add up to more than the interest on a standard mortgage leaving you a hefty lump sum to pay. Additionally, there’ll be £1 a month to pay to the government as a management fee.

        You can make a repayment at any time but it must be over 10% of the property’s current value. You’d need to have your property valued by a chartered surveyor to determine that amount.

        The benefits of Help to Buy

        You may be wondering what the big pluses are for choosing this route versus applying for a traditional mortgage and if there are any drawbacks in doing so. In short, a Help to Buy mortgage gets you:

        • A bigger deposit;
        • Better rates;
        • Access to more lenders;
        • Lower monthly repayments;
        • To get on the property ladder faster than anticipated;
        • No interest fees during the first 5 years.

        Possible drawbacks of the scheme

        Here are some things to consider, though…

        • You’re limited to the regional value caps;
        • You can’t buy to let
        • If the value of your property increases, you’ll be paying back more than the government originally gave
        • Interest can reach more than on a standard mortgage once past the 10 year mark;
        • It’s another process to go through and additional paperwork (but that’s something a broker can assist with).

        What alternatives are available?

        Rather than an equity loan, another government scheme to consider is Help to Buy: Shared Ownership. This is where you purchase a share – between 25% and 75% – of a property, either a new build or one available in a housing association resale program. You’d then pay rent on the remaining amount to the government.

        You’d need a mortgage to cover your share but, over time the idea is that you’d increase your ownership percentage until you owned the home outright. To qualify, you’d need to either be a first time buyer or have previously owned a property but no longer be able to afford to buy one, earn under £80,000 (£90,000 in London), and have a deposit of between 5% and 10%. This model is available until 2023.

        Get matched with a Help to Buy specialist today

        Although the Help to Buy scheme can offer you a better mortgage deal in the long-run, at the time of application it’s an additional factor to consider and another process to go through, but don’t worry – help is available.

        Getting matched with a broker who can offer bespoke guidance and support means they’ll be able to talk you through the differences compared to a traditional mortgage, guide you through the application processes and allow you access to a multitude of mortgage lenders that subscribe to the Help to Buy model.

        The brokers we work with:

        1. Have expertise of the Help to Buy scheme and access to the latest information as the schemes evolve;
        2. Maintain relationships with lenders and estate agents working on Help to Buy mortgages;
        3. Can speed up the mortgage process by navigating the various steps with you.

        If applying for the Help to Buy scheme as part of your process to get a mortgage is something you’d like to explore, get in touch to book a free consultation with your ideal Help to Buy mortgage broker today. Call 0808 189 0463 or make an enquiry and we’ll match you today.

        FAQs

        You can usually expect it to take 6 weeks from application to completion of the sale.

        Absolutely. In fact, the bigger the deposit the better mortgage you’ll be able to secure. For example, you could contribute 25% and still request 20% as an equity loan. You’d then only need a 55% loan to value (LTV) mortgage, which will mean much better rates than if you were applying for a 75% LTV mortgage.

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        Pete Mugleston

        Mortgage Expert, MD

        About the author

        Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

        Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

        FCA Disclaimer

        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

        Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.