Before you looking for an expert help to buy mortgage advisor, first you need to understand what the help to buy mortgage is. The Government’s Help to Buy scheme is aimed at helping first-time buyers to get on the property ladder. It enables people with just a 5% deposit to buy a new-build home by providing an ‘Equity Loan’ of up to 20% (or up to 40% if you live in London) of the property’s value, which is interest-free for the first five years, so they need to only get a mortgage for 75% (55% in London) of the home’s purchase price.
The equity loan is then repaid after 25 years, or earlier if the home is sold, and the borrower must repay the same percentage of equity as the initial loan. So, if you received a loan of 20%, you must pay back 20% of the proceeds from the sale. While you won’t pay any interest or fees on the equity loan for the first five years, interest charged at 1.75% will be payable in the sixth year. For each year after that, you’ll also pay a fee based on the Retail Prices Index, plus B1%.
Why was the Help to Buy scheme launched?
The Government launched Help to Buy in 2013 as a way of helping homebuyers struggling to save a deposit to get on the housing ladder, as well as making new-build properties more affordable. The theory is that the bigger the deposit a buyer can put down, the more mortgages they will have access to, often with the most competitive rates, and terms and conditions.
It also means that buyers don’t have to worry about paying interest on the equity loan for the first five years, giving them chance to get their finances in order after investing in a property, which is a huge decision.
Help to Buy equity loans are available to first-time buyers and previous homeowners who no longer own a property. However, from 2021, it will be available only to first-time buyers.
An equity loan can be used only to purchase new-build properties in England that are worth up to £600,000. That means that homebuyers can borrow a maximum of £120,000 for properties outside of London, and £240,000 for homes in the capital.
Why should I apply for a Help to Buy loan?
If you are struggling to save a big deposit or can’t access some of the better mortgage rates on the market, then a Help to Buy loan could help. The loan is aimed at topping-up your deposit to 25%, which should give you access to better mortgage deals, but may also enable you to afford a more expensive property.
If you were buying a property worth £200,000 and had only a 5% deposit, you would need to find a mortgage of £190,000. If you had a Help to Buy loan as well, the amount you would have to borrow would fall to £150,000, or 75%. However, if you can save a bigger deposit, you can still get an equity loan of 20%. So, if you had a deposit of 15%, the amount you would have to borrow as a mortgage would fall further still, to £130,000.
It’s important to remember, though, that if you take out a Help to Buy loan, the Government will own a 20% stake in your home until you repay it. That means that if your home increases in value over the term of the loan, the amount you have to pay back will also increase, as it will always be based on the initial 20% of the equity you borrowed. For example, if you took an equity loan work £40,000 to buy a £200,000 property and, over the term of the loan, your home increased in value to £300,000, you would have to pay back £60,000.
In the long-term, although you’d still benefit from your property increasing in value, it wouldn’t be by as much as you could have done had you just taken out a standard mortgage.
Help to Buy Mortgage Advisor Although Help to Buy mortgages can help you get on – or back on – the property ladder, they are not the best option for everyone. If you are looking for a mortgage and want to know your options, My Mortgage Pro can connect you with an expert mortgage broker who can help you find the best solution. To find out more, fill out the form below to request a call and we’ll be in touch.