What is Help to Buy?
An introduction to Help to Buy from Share to Buy
Help to Buy is a government backed scheme which aims to help first time buyers onto the property market. There are two Help to Buy products: Help to Buy Equity Loans (England only) and Help to Buy Mortgage Guarantees (UK-wide).
On this page we have an explanation of both Help to Buy schemes, as well as information on eligibility.
Help to Buy Equity Loans
Help to Buy Equity loans give buyers who want to purchase a new build home with the help of an equity loan (also known as shared equity) of up to 20% of the value of the home you are buying. The government provides the loan of up to 20%, so the buyer needs only a 5% deposit, and a 75% mortgage to make up the rest.
Help to Buy Equity Loans make getting on to the housing ladder more accessible to some by reducing the amount required for a deposit when compared to buying a property on the open market. Another benefit of a Help to Buy Equity Loan from the government is that with a larger amount to put down, the buyer will hopefully get a better mortgage rate from the lender.
So, if you wanted to buy a property worth £250,000 the Help to Buy Equity Loan would break down like this:
- A £50,000 loan from the government
- A £12,500 deposit put down by you
- A £187,500 mortgage from a mortgage lender
The Help to Buy Equity Loan is interest-free for 5 years. After that, the purchaser pays 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%.
The purchaser can start repaying the equity loan after they’ve owned the home for a year, but they’ll 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, they’ll need to repay the percentage equity loan that is still outstanding. So, for example, if they originally bought 80% of the property and they 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:
- If you take a 20% equity loan to buy a property worth £250,000, or £50,000;
- When you sell the property, it's worth £300,000;
- You repay £60,000 - this is 20% of the new value of your home, not the amount you borrowed;
- If the property had dropped in value, you'd pay less than you borrowed.
Who is eligible for Help to Buy Equity Loans?
- To be eligible for Help to Buy Equity Loans:
- You must be at least 18 years old
- There is no maximum household income level
- You will require at least a 5% deposit of the full purchase price
- You must take out a mortgage which will need to be for 25% or more of the full purchase price
- If a home owner already you must have sold your current home before or at the point of completion on your Help to Buy home
- You cannot rent out your existing property to buy a second home through Help to Buy
- Part Exchange is not available through this scheme
- You cannot sublet your Help to Buy home
- You cannot buy a home on sale for more than £600,000
- 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
The difference between Help to Buy Equity Loans and Shared Ownership
There are siginificant 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 housebuilders and shared ownership by housing associations, but there are some housing associations with allocations for the Help to buy equity loan scheme.
Help to Buy Mortgage Guarantee
The Help to Buy mortgage guarantee scheme can help the purchaser buy a newly built home or an existing property with a deposit of as little as 5%. It is available across the UK.
Help to Buy Mortgage Guarantee work like this:
- You'll put down a deposit of at least 5%
- You can borrow up to 95% of the property's price from a mortgage lender.
- The government will then guarantee any mortgage borrowing above 80% of the property's value.
- For example, if you took out a 85% mortgage the government would guarantee to repay your lender up to 10% of its value if you defaulted.
The mortgage guarantee is provided to the lender, not to the purchaser. For the purchaser it is no different to any other mortgage. They are responsible for repaying the whole loan and could face repossession if they fell into arrears.
For the lender, this will mean that lending to people with small deposits will carry much less risk, so it should create much more choice for borrowers. However the government is giving lenders the freedom to set their own interest rates as part of the scheme, so there are no guarantees they’ll offer an attractive rate.
31st December 2016
For those looking for Shared Ownership homes in the south of England, we've had more recent additions which may be of interest.
Click the following link to read on and see these new Shared Ownership houses and apartments which were added to our website in late December. Read on
Click here to begin your search for a shared ownership property in any area.
5th December 2016
While you are looking for a suitable property and going to viewings, there is one task that you can sensibly start, so that when you have been offered a property, your mortgage application is not delayed. All mortgage applications will require that you provide documents as part of the process so start getting your documentation ready.
7th November 2016
We've teamed up with WhatHouse? to bring you Your Guide to Shared Ownership. Inside you’ll find all you need to know about the scheme: whether you are eligible, the process of finding and purchasing a Shared Ownership property, the pros and cons of Shared Ownership and much, much more.
20th October 2016
Read our latest blog from our Mortgage Expert Stephen Dwelley. In this blog Stephen answers the frequenlty asked questions from first time buyers trying understand how much they can borrow for a mortgage and what is affordable.
Shared Equity Mortgages: FAQs
1. What is shared equity?
Shared equity schemes enable a customer to share equity with another party in order to make the purchase easier (e.g. to assist a first time buyer). The classic example of shared equity ownership is where a first time buyer purchases a property with a small deposit of their own, and a larger deposit on top by way of an equity loan. The main Government shared equity scheme is Help to buy; this was the Coalition’s first high profile shared equity first time buyers policy. Of the shared equity schemes currently available UK wide, you should note that there are currently none available in the open market shared equity category, meaning buyers are generally restricted to new build homes.
2. Where can I find shared equity homes?
You can find shared equity properties for sale on our shared equity property website. We list both shared equity properties and part buy part rent homes. For each shared equity property we list, we show the minimum deposit required to that buy that home.
3. How much deposit to I need to buy a shared equity house?
The main benefit of equity share properties is that the buyer can generally put down as little as 5% as a deposit whilst accessing mortgages available for a 25% deposit on the open market. This is because shared equity lenders will generally base the ‘loan to value’ of the purchase on the home equity share divided by the full market price, NOT the deposit in relation to the share itself.
4. Where can I find information on shared equity in London?
To find shared equity homes in London, or other areas like Manchester, search our affordable homes property website. Alternatively, contact your regional homebuy agent.
5. Is there a shared equity calculator to show what I can borrow?
The HCA provides strict affordability rules for what you can borrow with an equity share scheme. When you find a property you wish to buy through a shared equity scheme, the provider of that home will take you through an affordability assessment.
6. Where can I find information on shared equity mortgages?
Share to Buy ltd can has extensive experience in arranging equity share mortgages and we have access to all the main shared equity mortgage providers. This includes shared equity mortgage lenders who will take a deposit of just 5%. Contact us to discuss your equity share mortgage enquiry and to find out about the latest shared equity mortgage rates In the UK. Finally, we are able to arrange shared equity mortgages countrywide, although schemes vary within the devolved nations.