What is Help to Buy?
Help to Buy Equity Loan – all you need to know!
Help to Buy is a government-backed scheme which aims to help first time buyers onto the property market.
Help to Buy provides eligible buyers with an equity loan (also known as shared equity) of up to 20% of the value of a new build home. The government provides the 20% loan so the buyer only needs to raise a 5% deposit, with a 75% mortgage making up the rest.
When does the Help to Buy scheme end?
The Help to Buy equity loan will be coming to an end on Friday 31st March, 2023. However, the scheme closed to new applicants on Monday 31st October, 2022.
Please note that this doesn’t mean you have to be ready to move by the end of October, but you will need to have reserved your home with a registered homebuilder and submitted the initial application by 6pm on deadline day.
If you’re a buyer eligible for the equity loan, and you submitted your Help to Buy application before the cut-off, your homebuilder must finish building your home by Saturday 31st December, 2022. You must then legally complete and get the keys to your new property by 6pm on Friday 31st March, 2023. It has been confirmed that there will be no extensions or exceptions.
What are some alternatives to the Help to Buy scheme that I can apply for?
While the government Help to Buy scheme has enabled thousands of buyers to take their first step onto the property ladder, there are plenty of other homeownership and alternative rental options available to first time buyers.
Meeting the demand for a more affordable route onto the housing ladder, Shared Ownership could be an ideal substitute for those who were interested in the Help to Buy equity loan. This part-buy part-rent scheme allows eligible purchasers to buy a share of a new build or resale home, paying a mortgage on the owned portion and a below-market-value rent on the remainder. As the purchaser only needs a mortgage for the share they’re buying, the amount of money required for a deposit is often much lower compared to those on the open market.
Other alternatives to Help to Buy include:
- First Homes: This initiative helps local people and keyworkers buy a home in areas of high demand, with developers offering homes to first time buyers with a discount of 30% to 50% of the market value of the property.
- Deposit Unlock: Available from participating developers, a 5% deposit scheme on new build properties where the home builder insures the mortgage to help the buyer get a better Loan-to-Value mortgage from lenders.
- Discount Market Sale: A low-cost homeownership product where a new build property is purchased at a discounted price. This discount is usually around 20% to help low and middle income earners who live in the borough.
- Discount Full Ownership: Available in London, this scheme allows buyers to purchase 100% of a property at a discounted rate of at least 20% compared to local market prices.
- Intermediate Rent: A rental scheme aimed at helping buyers who plan to save a deposit and purchase a property within five years, giving them the option to rent a new or refurbished home at a subsidised rate.
- London Living Rent: Available to renters in the capital, homes are offered on tenancies of minimum three years with below-market value rent. The tenant can go on to make an offer to purchase the property on a Shared Ownership basis during the tenancy.
- Rent to Buy: Working households are able to rent a new build home on an Intermediate Rent basis, with the property being let a subsidised rate of 20% and a fixed rate of inflation. The tenant can go on to make an offer to purchase the property on a Shared Ownership basis during the tenancy.
- Lifetime ISA for deposits: An Individual Savings Account (ISA) which allows buyers to save up to £4,000 every tax year to put towards their first home, with the government adding a 25% bonus on top of what is saved, up to a maximum of £1,000 per year.
You can find out more about these Help to Buy alternatives on Share to Buy.
What is Help to Buy?
Help to Buy in London
To reflect the higher property prices in the capital, the government increased the upper limit for the equity loan from 20% to 40% for buyers in London. With London Help to Buy, the government provides this 40% loan and the buyers will still only need to raise a 5% deposit, but with a 55% mortgage making up the rest. Please note that the Help to Buy: Equity Loan is subject to eligibility, terms and conditions.
Why buy a Help to Buy home?
This first time buyer scheme makes getting on to the housing ladder more accessible to some buyers by reducing the amount required for a deposit when compared to buying a property on the open market.
What are the costs of a Help to Buy home?
If you wanted to buy a new build home worth £250,000, the Help to Buy Equity Loan would break down as follows:
- £50,000 loan from the government.
- £12,500 deposit put down by you.
- £187,500 mortgage from a mortgage lender.
The Help to Buy equity loan is also interest-free for five years. After that, the purchaser pays an annual fee of 1.75% on the amount of the outstanding loan, however this fee will increase each year by inflation (Retail Price Index (RPI) + 1%.
The purchaser can start repaying the equity loan after they’ve owned the home for a year, but they would need to be able to pay a minimum of 10% of the property value at the time of repayment.
When they want to sell their home, the owner will need to repay the percentage equity loan that is still outstanding. So, for example, if they originally bought 80% of the property and hadn’t repaid any of the equity loan, their repayment on selling would be 20% of the market value at the time when they sell.
In practice, this means:
- You take a 20% equity loan to buy a property worth £250,000, equating to £50,000.
- When you sell the property, it’s worth £300,000.
- You will repay £60,000 as this is 20% of the current value of your home, not the amount you borrowed.
- In turn, if the property had dropped in value, you’d pay less than you borrowed.
Who is eligible for the Help to Buy equity loan?
The general eligibility criteria for Help to Buy is as follows:
- You must be at least 18 years old.
- You must be a first time buyer, meaning that you have never owned another property either in the UK or abroad. If you are purchasing a property with another person, you must both meet the definition of a first time buyer to benefit from the scheme.
- You will require at least a 5% deposit of the full purchase price of the property.
- While there are no minimum or maximum income brackets, you must be able to fund at least 80% (60% in London) of the purchase through a combination of deposit and mortgage.
- The value of the property you’re purchasing can’t be over the regional price cap for your area – full list of price caps below.
- You must be able to prove you can afford the mortgage repayments and other outgoings on the home you wish to buy. There is a standard Homes and Communities affordability calculator which will determine whether the property is sustainable long term.
- Part Exchange is not available through the scheme.
- You cannot sub-let your Help to Buy home.
- The Help to Buy: Equity Loan is subject to eligibility, terms and conditions.
Rules of buying a Help to Buy home
Help to Buy is only available on new build developments where Homes England have a registration agreement with the housebuilder. Both houses and apartments are available through the scheme, but the value of the property you’re purchasing can’t be over the specified regional price caps. The regional price caps for Help to Buy are as follows:
- London: £600,000
- South East: £437,600
- East of England: £407,400
- South West: £349,000
- East Midlands: £261,900
- West Midlands: £255,600
- Yorkshire and the Humber: £228,100
- North West: £224,400
- North East: £186,100
For further information about the home-buying and application process with the Help to Buy: Equity Loan, please refer to the Help to Buy Agent in your area.
What are the differences between Help to Buy and Shared Ownership?
There are significant differences between Help to Buy and Shared Ownership, but the key difference is that with Help to Buy, you purchase and legally own all of the property. In contrast, the Shared Ownership scheme allows buyers to purchase a share of a property (usually between 25-75%), paying a mortgage on the part they own and a subsidised rent to their provider on the rest; the buyer can then choose to go on to buy more shares through a process known as staircasing.
A key point to remember here is that the deposit you put down on a Help to Buy home will generally include a sizeable boost from the equity loan which makes up the difference between the mortgage and the purchase prices, while the deposit on a Shared Ownership property will be between 5-10% of the share you’re purchasing – not the full market value of the property.
Help to Buy is generally provided by housebuilders while Shared Ownership if offered by housing associations. However, there are numerous housing associations who also offer homes through the Help to Buy scheme.
To find out more about the differences between these two schemes, check out our Shared Ownership vs Help to Buy guide.
Want to find out more about Help to Buy or Shared Ownership? Visit our article index for informational features and blogs, or check out our helpful FAQs and guides. Alternatively, you can start your search for a new home on Share to Buy’s property portal today!
Search our Guides and FAQs
What are shared equity / equity loans?arrow_downward
Shared equity schemes give you a loan that acts as part of the deposit on a property. You will still need to take out a mortgage on the remainder of the property price, but because the loan counts towards your deposit you may be able to take out a mortgage where you might otherwise struggle.
Legally, you own 100% of the property.
In the short term, shared equity can mean you’ll be able to buy a house without paying a big deposit, although in the long term it could work out as a more expensive way of buying a home.
There is no interest charged on the equity loan in the first five years, but after that you pay a fee on the loan of 1.75%, rising each year by the retail price index (RPI) plus 1%.
After 25 years you will need to pay back the loan in full. As it is an ‘equity loan’, it is proportionate to the property value rather than being a fixed figure. Because of this, the amount you will have to repay will depend on the value of your property at the time.
There have been a number of Government backed shared equity schemes in the past (Firstbuy, Homebuy Direct), and the current Government backed equity loan scheme is called Help to Buy.
How do I apply for a Help to Buy equity loan?arrow_downward
To apply for a Help to Buy equity loan you must contact the Help to Buy agent in your area. You must buy your home from a registered Help to Buy builder, and your local Help to Buy agent should have a list of registered builders for you to choose from.
Can I sell my Help to Buy home?arrow_downward
Yes, the home will be in your name, which means you can sell it at any time. You’ll have to pay back the equity loan when you sell your home or at the end of your mortgage period – whichever comes first.
What is the interest charge on a Help to Buy equity loan?arrow_downward
The Help to Buy equity loan is interest-free for 5 years. After that, you pay an annual fee of 1.75% on the amount of the outstanding loan. The fee will increase each year by inflation (Retail Price Index (RPI)) + 1%.
When do I pay back the equity loan?arrow_downward
You’ll have to pay back the Help to Buy equity loan when you sell your home or at the end of your mortgage period – whichever comes first.
You can also pay back some of your equity loan without selling your home. You can pay back either 10% or 20% or the total amount, so long as the loan is worth at least 10% of the value of your home.
What is the difference between Shared Ownership and Help to Buy?arrow_downward
There are significant differences between Help to Buy equity loans and Shared Ownership, but generally, with Help to Buy equity loans you purchase ALL of a property and legally own ALL the property. However, the key point is that the deposit you put down includes a generally sizable equity loan making up the difference between the mortgage and purchase price (i.e. to a large extent, this shared equity loan is your deposit).
In contrast, Shared Ownership schemes are usually undertaken whereby you only own a specific share as a lease on a Shared Ownership property (normally owned by a housing association), and you can only achieve 100% ownership by ‘staircasing’ up from shares of 25%+ to full ownership.
Help to Buy is generally provided by private developers and Shared Ownership by housing associations, but there are some housing associations with allocations for the Help to Buy equity loan scheme.