The help to buy scheme is run by the government and aims to help first time home buyers. It is not suitable for those who have already had a mortgage in the past – it is not even worth trying. But assuming you are finally ready to get over renting and buy your own home, this scheme will run until 2023 – and chances are it will be extended later on, as it has happened before.

The scheme aims to help new buyers overcome the biggest problem in buying a home – saving the money for a deposit. When most of your income goes to rent, you will obviously struggle. In a world where most lenders ask for 10% to 15% as a deposit, the scheme will let you bring in 5% only. You can also borrow 20% to 40% of the property without an interest rate for the first five years.

How the help to buy scheme works

The help to buy scheme from the government provides access to an equity loan. Basically, the government will give you the money to get a home. There are a few conditions though. First, the property must be brand new. Second, it should be your own residence – you cannot use it for a second home and you cannot let it out. For something like that you would need to take out a regular loan (even with bad credit) or traditional mortgage.

The deposit is set to 5%, meaning it is more doable than what lenders ask for. You can then borrow 20% of the purchase price without paying interest for the first five years. If you live in London, you can borrow 40% of the purchase price, as properties tend to be more expensive in the capital. Based on where you live, there might be some more limitations.

For example, each area has some restrictions regarding the maximum price of the property. If you live in the north east, the property price should not exceed £186,100. On the other hand, prices for London are set to £600,000. Obviously, these limits are likely to change overtime, so it is always worth checking before actually looking for properties and making an application.

There are other differences based on which part of the UK you live in too. The help to buy scheme is available in England only. Scotland, Wales and Northern Ireland have their own varieties of this scheme too. However, there are more differences between them – make sure you go for the area you live in to avoid delays.

How the equity loan works

Assuming you have the 5% needed for your new home, the government will give you 20% or 40% (only available for London) of the sale price. The rest – anywhere between 55% and 75% – will come from a mortgage lender. It could be your bank or a different lender – it pays off seeking advice from a mortgage lender before making a decision.

The equity loan has no interest for five years. Then, you will have to pay 1.75%. Starting with the sixth year, your payments will change again – it will depend on the CPI (Consumer Price Index). You have to pay the equity loan after 25 years. You will have to do it faster should you decide to sell the home. You must pay back the same percentage of the selling price as the first equity loan.

In conclusion, the help to buy scheme is excellent for first time buyers who struggle saving the money for a deposit. Even if you are good with your savings, it still pays off paying no interest for five years, so the scheme is still profitable – regardless of your status.

About Author

Martin has been a financial consultant for over 20 years. He has graduated in finances and just like everyone else, he has had his struggles making more or less informed decisions while young. He knows that millions of people make the wrong decisions every single day, hence his dedication to help.

Over the past few years, he has shared his knowledge and education with those who are not sure what to do. Writing from personal experience, his advice is invaluable. Most importantly, it will lead you in the right direction when not sure what to do about your next financial move.

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