Help to Buy

On the 16th December 2020 the Government launched the new Help to Buy scheme. The scheme is designed to help first time buyers purchase their own new build home with as little as a 5% personal deposit.

Help to Buy

On the 16th December 2020 the Government launched the new Help to Buy scheme. The scheme is designed to help first time buyers purchase their own new build home with as little as a 5% personal deposit.

Help to Buy: Equity Loan (2021-2023)

If you’re a first-time buyer in England, you can apply for a Help to Buy: Equity Loan.

This is a loan from the government that you put towards the cost of buying a newly built home.

You can borrow a minimum of 5% and up to a maximum of 20% (40% in London) of the full purchase price of a new-build home.

You must buy your home from a homebuilder registered for Help to Buy: Equity Loan.

The amount you pay for a home depends on where in England you buy it.

Help to Buy: Equity Loan price caps – April 2021 to March 2023

Region Maximum property price
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

 

The equity loan, the deposit you have saved, and your repayment mortgage cover the total cost of buying your newly built home.

The percentage you borrow is based on the market value of your home when you buy it.

You do not pay interest on the equity loan for the first 5 years. You start to pay interest in year 6, on the equity loan amount you borrowed.

The equity loan payments are interest only, so you do not reduce the amount you owe.

You can repay all or part of your equity loan at any time. A part payment must be at least 10% of what your home is worth at the time of repayment.

Example: for a home with a £200,000 price tag

75% mortgage = £150k, government 20% loan = £40k, buyer's 5% deposit = £10k 

Paying back the equity loan

When deciding if an equity loan is right for you, it’s important to consider the full cost of your borrowing:

For the first five 5 years:

  • the equity loan is interest free
  • you pay a £1 monthly management fee by Direct Debit

 From year 6:

  • pay the £1 monthly management fee
  • pay monthly interest fee of 1.75% of the equity loan
  • interest rate will rise each year in April by the Consumer Price Index (CPI), plus 2%
  • continue to pay interest until you repay your loan in full

When you take out your equity loan, you agree to repay it in full, plus interest and management fees.

You must repay your equity loan in full:

  • at the end of the equity loan term
  • when you pay off your repayment mortgage
  • when you sell your home
  • if you do not follow the terms set out in the equity loan contract and we ask you to repay the loan in full

The amount you pay back is worked out as a percentage of the market value at the time you choose to repay.

If the market value of your home rises, so does the amount you owe on your equity loan. And if the value of your home falls, the amount you owe on your equity loan falls too.

Lifetime ISA

 

You can use a Lifetime ISA (Individual Savings Account) to buy your first home or save for later life. You must be 18 or over but under 40 to open a Lifetime ISA.

You can put in up to £4,000 each year, until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

You can hold cash or stocks and shares in your Lifetime ISA, or have a combination of both.

When you turn 50, you will not be able to pay into your Lifetime ISA or earn the 25% bonus. Your account will stay open and your savings will still earn interest or investment returns.

Buying your first home

You can use your savings to help you buy your first home if all the following apply:

  • the property costs £450,000 or less
  • you buy the property at least 12 months after you open the Lifetime ISA
  • you use a conveyancer or solicitor to act for you in the purchase - the ISA provider will pay the funds directly to them
  • you’re buying with a mortgage

Buying with someone else

If the person you’re buying with has a Lifetime ISA, they can use their savings and government bonus too.

They’ll pay a 25% withdrawal charge to use their Lifetime ISA savings if they own or have a legal interest in property (for example they’re a beneficiary of a trust that includes property).

If you have a Lifetime ISA and a Help to Buy ISA, you can only use the government bonus from one of them to buy your first home.

You can transfer money from a Help to Buy ISA to a Lifetime ISA. If you transfer money from a Lifetime ISA to a Help to Buy ISA you’ll have to pay the 25% withdrawal charge.