Certain people are eligible for assistance when purchasing property through the government’s Help to Buy scheme. This scheme is aimed at helping those with small deposits to buy primarily new build property.
If you intend to use Help to Buy as part of your purchase, that’s absolutely fine. Please contact one of our team to discuss it.
The scheme has three separate segments that apply to different circumstances.
- Help to Buy ISA
- Help to Buy: Shared Ownership
- Help to Buy equity loan
Help to Buy ISA
The Help to Buy ISA is a special type of Individual Savings Account aimed at helping first time buyers. The difference between this and a standard ISA is that you can claim a bonus of 25% to the money saved in a Help to Buy ISA when you buy your first property. You can apply for a Help to Buy ISA at most high street banks and building societies.
To qualify for the government bonus, the property you’re buying can be up to the value of £250,000 (£450,000 in London). It must be in the UK, be your only home, be where you will live and be purchased with a mortgage.
With a Help to Buy ISA:-
- You can save up to £200 a month with an initial deposit of up to £1,200.
- The minimum bonus is £400, so there must be more than £1,600 in your Help to Buy ISA before you can claim a bonus.
- The maximum bonus is £3,000, but for this you will need to have saved £12,000 in your Help to Buy ISA.
- If there are two of you buying together, you can both get a Help to Buy ISA and can claim the bonus on both.
- The bonus can only be used as part of your completion funds: you can’t use it as your initial deposit upon exchanging contracts or for paying any associated costs such as estate agency fees.
The government provides a Help to Buy ISA calculator which you can use to see how much bonus you would get.
If you have already opened a cash ISA in this tax year, you can still get a Help to Buy ISA by transferring your cash ISA to a Help to Buy ISA. As the maximum deposit for a Help to Buy ISA is £1,200, you will need to transfer any additional funds in your cash ISA to another account.
Help to Buy Equity Loan
The Help to Buy equity loan is a government loan of up to 20% of the purchase price of a new build property with no interest for the first 5 years. To qualify for this loan, you need to:-
- Be purchasing a new build property of £600,000 or less
- Be buying from a registered Help to Buy builder
- Have at least 5% deposit
In the 6th year, you will be charged 1.75% of the loan’s value. For every year thereafter you will be charged 1.75% plus the Retail Price Index plus a further 1%.
The loan must be repaid within 25 years or when you sell the property. It is important to note that the Help to Buy equity loan is different from a mortgage in that if your property rises in value, so does the government’s equity. In essence the government takes a share of your property in exchange for the loan. If you sell your home at a 50% profit, you pay off the government with a 50% profit on their equity.
You cannot use Help to Buy to subsidise the purchase of a buy-to-let property.
Help to Buy: Shared Ownership
If you can’t afford the property you want, it’s common to rent. However, if renting isn’t for you, this scheme allows you take a mortgage out for the portion you can afford and pay a subsidised rent on the remainder. If, later down the line, you can afford to buy a greater share of the property, you can do. With this scheme you can buy new homes from a Registered Provider or existing property offered by Housing Associations. To qualify for Help to Buy: Shared Ownership:-
- Household income must be less than £80,000 per year (£90,000 in London)
- You must be a first time buyer or previous homeowner that cannot afford to buy now.
- You cannot own any other property.
- You may be renting from a council or housing association.
- You must not have any outstanding County Court Judgements or other credit problems.