Help to Buy – Everything you need to know

The government’s new Help to Buy equity loan scheme will open for applications on 16 December 2020.

The scheme is designed to help people purchase a new-build property with just a 5% deposit, which the government tops up with a 20% equity loan, rising to 40% in London.

However, unlike the previous version of Help to Buy, the new scheme which runs until 2023 is only available to first-time buyers.

We recently hosted a webinar explaining both the current and new Help to Buy Schemes which you can watch below:

1. What is the Help to Buy 2021 scheme?

It is the latest version of the Help to Buy equity loan initiative.

It enables people to buy a new-build home with a deposit of just 5%, which the government tops up with an equity loan equivalent to 20% of the property’s value, rising to 40% in London.

The loan Help to Buy equity loan is interest-free for five years.

The combined deposit and equity loan enable buyers to qualify for 75% loan-to-value (LTV) mortgages, which typically have lower interest rates than mortgages for people borrowing a higher proportion of their home’s value.

The new scheme will run for two years from 1 April 2021, but applications open on 16 December 2020.

2. How is it different from the old Help to Buy?

Unlike the previous Help to Buy equity loan scheme, which was available to all buyers purchasing a new-build property, the current version is only open to first-time buyers.

The government has decided to limit the new version to people who do not currently own a property in order to assist those who needed help most. However, there are other government schemes open to more people and those who are not first-time buyers.

The new Help to Buy also introduces regional price limits, with buyers not able to use the initiative to purchase a home costing more than 1.5 times the average first-time buyer property price in their region.

These price caps range from £186,100 in the North East to £437,600 in the South East and £600,000 in London.

Regional price caps in full:

A third change relates to tightened building standards. Housebuilders now have to comply with more stringent conditions, including following the Consumer Code for Home Builders and belonging to the New Homes Ombudsman, which is due to be launched in 2021.

Since the Help to Buy initiative was first launched in 2013, it has helped more than 270,000 people purchase a property. Around 82% of people who benefitted from the scheme were first-time buyers, two-thirds of whom were aged under 34.

3. Who is eligible for Help to Buy 2021?

The scheme is only open to first-time buyers.

A first-time buyer is defined as someone who does not currently own or has never owned a property or residential land, either in the UK or abroad.

Those applying for Help to Buy 2021, will be asked to sign a legal declaration to confirm they are a genuine first-time buyer.

If you are buying as a couple you must both meet the definition of a first-time buyer in order to use the initiative.

In addition, you must have a high enough income to be able to fund at least 80% of the purchase through a combination of a deposit and mortgage, as well as being able to pass lenders’ affordability tests.

In most cases, your mortgage will need to be less than 4.5 times your total annual income before tax.

4. What happens when you have to pay the loan back?

The equity loan is interest-free for the first five years, although borrowers will have to pay a management fee of £1 a month for the life of the loan.

Once the first five years are over, interest is charged at an initial rate of 1.75%, rising each year by inflation as measured by the Consumer Prices Index plus 2%.

The loan, which is secured as a second charge against your home, does not have to be repaid until you sell the property, pay off your mortgage or reach the end of your loan term.

You can start repaying the loan sooner if you want to, but your repayments must be equivalent to at least 10% of the value of your home at that time, with the option to repay 10%, 20% or 30% at a time if you are in London and took out a 40% equity loan. You will also need to pay an administration fee.

The equity loan rises and falls in line with your property’s value, so you may have to repay more than you borrowed when you first purchased your home.

5. What kind of home can I buy using Help to Buy? 

People using the scheme must purchase a new-build property.

New-build homes offer a number of advantages. They are typically low maintenance, and any major repairs will be covered for the first 10 years by the builders’ warranty, offered through the National House Building Council (NHBC).

They also tend to have higher energy efficiency standards, making them cheaper to run than older properties.

In addition, you have the option to buy off-plan with a new-build, enabling you to get in on a development early and benefit from any house price growth while your home is still being built.

6. How do I apply for Help to Buy 2021?

Registered homebuilders advertise Help to Buy homes for sale on their developments. Homebuilders that are part of the scheme will display the Help to Buy logo on their websites.

Once you have found a property you want to purchase, you must reserve your home by paying a fee of no more than £500 before you apply for the equity loan. If you are not eligible for an equity loan, this fee will be refunded to you.

A Help to Buy agent will assist you in your application for an equity loan. You can find a local Help to Buy agent here.

Once your equity loan is approved, you will be given the Authority to Proceed, which is valid for three months. Once you have this you can apply for a repayment mortgage. You can also appoint a conveyancer to handle your purchase.

You must exchange contracts within three months of receiving the Authority to Proceed, and complete the purchase within six months of exchanging contracts.

So if you think Help to Buy is for you, take a look at our New Homes developments, some of which are signed up to Help to Buy, here