Work out what you can afford to buy in London, Scotland, Wales and the South with our Help to Buy calculator. Learn how to afford your first home with a small deposit and equity loan from the government. Calculate how much Help to Buy equity loan you need to buy. Learn more about the Help to Buy schemes, including shared ownership, Help to Buy ISA and Lifetime ISA by exploring our guide.
Help to Buy mortgage schemes are designed to help first-time buyers get onto the property ladder.
The three main Help to Buy mortgage schemes are:
Help to Buy equity loans are loans from the government for the deposit on specific Help to Buy properties. The equity loan is interest-free for the first five years.
You must have at least a 5% deposit to be eligible for the Help to Buy equity loan.
The government then loans you up to 20% of the property value (or 40% within Greater London) towards your deposit. So, you could have either a 25% or 45% deposit depending on where you want to buy.
Having a bigger deposit means you do not need to borrow as much money from a mortgage lender.
The maximum property value in England is £600,000, or £300,000 in Wales.
To take out a Help to Buy Equity Loan, contact your local Help to Buy agent.
For a £400,000 property in London, you’d need to save a minimum £20,000 deposit (5% of the property’s value). This would unlock a £160,000 loan from the government, giving you a total deposit of £180,000.
With the government Help to Buy loan, you’d only need a £220,000 mortgage. Without the loan, you would need a £380,000 mortgage. The loan reduces your monthly repayments because you're borrowing less money from the mortgage lender.
The maximum loan in England is £120,000 (£240,000 in London). There is no minimum amount of equity loan.
So, if a flat cost £80,000, you would only need a deposit of £4,000 alongside a government loan of £16,000.
All this might sound great, but remember, you need to pay the government back…
You can apply for the Equity Loan until March 2021. Between April 2021 and March 2023, a new, watered-down version of the scheme is available. It will only be open to first-time buyers and includes new regional property price caps.
The Help to Buy regional price caps are:
Not all lenders offer Help to Buy mortgages, but some of the big lenders do. These include: Halifax, Virgin Money, Barclays; NatWest; Post Office, Santander; Nationwide Building Society; and TSB.
You can repay the equity loan at any time without penalty, in chunks of 10% or 20% only. You must repay it fully after 25 years, when you sell the property or when your mortgage term finishes – whatever happens first.
The loan is interest-free for the first five years during which you pay a £1 monthly management fee.
In year six you pay interest of 1.75%, and then the rate increases annually by the retail price index (RPI) measure of inflation plus 1%. This is known as staired interest.
For instance, in year seven you might have an interest rate of 1.87%, then 1.95% in year eight, 2.03% in year nine, and so on.
The rate of interest on the equity loan is fairly low. But it can be a significant extra cost on top of your monthly mortgage repayments, especially if you borrowed the maximum amount.
On the aforementioned £400,000 London property, the interest in year six alone would be £2,800. Remember, that’s in addition to your mortgage repayments.
The interest rate on the government loan is based on the property value when you sell it (not when you bought it). If property prices have gone up, you repay more. If property prices have gone down, you repay less.
So, if you sold that £400,000 London property for £450,000, and you had taken the full 40% equity loan (£160,000), you would have to repay the government £180,000. That’s £20,000 more than you originally borrowed.
However, if property prices fall and you only managed to sell yours for £380,000, you’d just repay £152,000. £8,000 less than you originally borrowed.
There are regional specific versions of the Help to Buy Equity Loan, including:
Separate from the Help to Buy Equity Loan are Shared Ownership, Help to Buy ISAs and Lifetime ISAs.
Read our full Help to Buy guide for detailed information on all of these schemes.
Help to Buy: Shared Ownership lets you purchase between 25% and 75% of a property. Shared Ownership houses are usually ex-council or new-builds.
You then get a mortgage for the proportion that you own, and pay rent on the remaining share. This scheme is sometimes known as part buy part rent.
Not every lender offers shared ownership mortgages. Those that do include Nationwide, Leeds Building Society, Halifax, Kent Reliance and Barclays.
Because you're borrowing less money, you need a proportionally smaller deposit to buy a property.
The combined cost of the mortgage and rent payments will usually be in line with what you'd pay if you'd got a mortgage for the whole property.
Only first-time buyers can get a Help to Buy ISA, so you may hear it referred to as a first-time buyer ISA.
When you buy your first home worth up to £250,000 (or £450,000 in London), the government pays out a 25% bonus.
To receive the maximum £3,000 bonus, you would need to contribute £12,000 into your Help to Buy ISA.
The Help to Buy ISA can be used on any property.
A Lifetime ISA (LISA) works in a similar way the Help to Buy ISA.
Both allow tax-free savings and both warrant a 25% bonus from the government. But with a Lifteime ISA, the bonus is paid in with the same frequency you contribute. So, if you pay in monthly, so does the government.
You can earn a maximum £1,000 bonus per year with the LISA for up to 32 years.
Edited by: Sarah Guershon
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Last updated: 10 July, 2019
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