Understanding Help to Buy

Posted: 12 May 2016 by Higgins Homes

A lot has been said about how difficult it is for first time buyers in the UK to get on to the first rung of the property ladder. With the average deposit for a first time buyer up 88% since 2007 (according to research by the Halifax) and house prices soaring, most people face something of an uphill battle to get that first home. Which is why, in 2013, the government first announced its Help to Buy measures, designed to support people looking to buy their first home.


How does Help to Buy work?

As of 2015, Help to Buy now comes in several forms: 

  • Help to Buy ISA
  • Help to Buy mortgage guarantee
  • Help to Buy equity loan


Help to Buy ISA

If you open a Help to Buy ISA then whatever you manage to save in it the government will boost those savings by 25%. So, for example, if you save £200 your government bonus would be £50 – up to a maximum of £3,000 in total. You need to save at least £1,600 to be eligible for the government bonus, which is applied for when you are ready to buy your first home. Help to Buy ISAs must be opened by 30 November 2019 and the bonus claimed before 1 December 2030.

There’s a monthly limit on how much you can put into your ISA (£200) but it’s worth noting that in the first month only you can deposit £1,200. The ISA is per person, not per household, so if you are buying with another person both your ISAs can be put toward a single property purchase.


Help to Buy mortgage guarantee

Those with enough saved to cover a 5% deposit will benefit from the Help to Buy Mortgage guarantee, which offers a mortgage lender the option of a guarantee for a mortgage loan. This means that, while you may only have a 5% deposit, the government guarantee protects the lender for more than this, meaning you are more likely to get a mortgage with only a small deposit. You must still be eligible for the mortgage and have at least 5% of the deposit saved. 

The scheme ends on 31 December 2016 and is open to joint or single borrowers. It’s available for any property, existing or new build, with a value up to £600,000.


Help to Buy equity loan 

This loan is available to those looking to purchase a new build property with a maximum purchase price of £600,000. If you have a 5% deposit saved, the Help to Buy equity loan offers funds for another 20% of the purchase price, meaning that the mortgage required drops to just 75%. If the property is sold at any time, the loan is simply paid back out of the proceeds. There are no fees for the first five years of borrowing the 20% loan, making it much lower cost than a standard mortgage loan.

To reflect the current property prices in London, the government increased the upper limit for the equity loan from 20% to 40% in February of this year. This would therefore require you to take out a mortgage of just 55%.


So far Barclays, Lloyds, Nationwide and Leeds Building Society have agreed to provide London Help to Buy mortgages, and the government are expecting other lenders to join too.

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