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.
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% (40% in London), so the buyer needs only a 5% deposit, and a 75% (55% in London) 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.
For more information, download the Help to Buy equity loan buyers’ guide (PDF, 309KB) or visit your local Help to Buy agent's website. You can find your local Help to Buy agent here.
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.