The Help to Buy scheme offers an equity loan where the government lends first-time buyers and existing homeowners money to buy a newly-built home.
The purchase price must be no more than £600,000. Under this scheme, you can borrow 20% of the purchase price interest-free for the first five years as long as you have at least a 5% deposit. If you live in London, you can borrow up to 40% of the purchase price.
Who can’t apply for the scheme?
You can’t use the above schemes to buy a second home or a property to rent out.
If you use Help to Buy, you can only take out a repayment mortgage.
You can’t buy a property for more than the set price limits
Help to Buy: Equity loans
How they work
You need at least 5% of the sale price of your new-build flat or house as a deposit.
The government lends you up to 20%, or 40% if you live in London, of the sale price.
You borrow the rest (up to 75%, or 55% if you live in London) from a mortgage lender, on a repayment basis.
The equity loan must be repaid after 25 years, or earlier if you sell your home.
You must repay the same percentage of the proceeds of the sale as the initial equity loan (i.e. if you received an equity loan for 20% of the purchase price of your home, you must repay 20% of the proceeds of the future sale).
The interest rate you will be charged
You don’t pay any interest or fees on the government’s equity loan for the first five years. In the sixth year, you’ll be charged 1.75%.
After then, the fee rises by inflation based on the Retail Prices Index (RPI) plus 1% each year.
RPI figures are put together by the Office for National Statistics.
Interest rates for paying back your loan
Years 1-5: no fees
Year 6: 1.75% of the loan
Year 7 onwards: 1.75% + RPI + 1%
These fees do not go towards paying off the government loan.
The government has announced a new Help to Buy scheme to run from April 2021. It is restricted to first-time buyers and includes regional property price caps to ensure the scheme reaches people who need it most. There are no changes to the current Help to Buy equity loan scheme which runs to March 2021.
The new scheme will run from April 2021 to March 2023. As with the current scheme, under the new scheme, the government will lend buyers up to 20% of the cost of a newly built home, and up to 40% in London.