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Help to Buy – how it works

30.06.2016

If you’re looking to get your foot on the property ladder, there’s a good chance you’ll have heard the words ‘Help to Buy’ already. But what do they actually mean?

The first thing to understand is that Help to Buy is not a single initiative – it’s a government-backed scheme which can be broken down into three distinct methods of assisting people to buy their first home.

If you’re looking to buy a property and have never owned one before, you are eligible to take advantage of any or all of the three forms of support on offer.

Sasha Jacques, head of our residential conveyancing team, considers each of the options available to you.

The Help to Buy ISA

A Help to Buy Individual Savings Account (ISA) is a high-interest savings account for people buying their first property. You can open one with most major banks and make an initial deposit of £1,000. After that, you can deposit a maximum of £200 a month.

Interest rates on Help to Buy ISAs are generally higher than those on Cash ISAs, which can make them an attractive option for would-be homeowners.

The real benefit of this account though is that when you come to buy your property, the government will throw in a top-up to the tune of 25% of the amount saved – a significant amount.

Your solicitor must apply for this bonus on your behalf when you buy. Currently the minimum amount that can be claimed is £400 – so you need to have saved at least £1,600 first. The maximum that can be claimed is £3,200 – but you can still deposit additional money in the account to take advantage of the interest rate.

From April 2017 you’ll be able to convert your Help to Buy ISA into a Lifetime ISA, which can be used to save for property or retirement. This new kind of account will have no limit on the amount you can deposit each month or on the government bonus available.

The Help to Buy equity loan

To be eligible for the equity loan, the home you wish to buy must:

  • be a new build
  • have a purchase price of up to £600,000 (in England)
  • if applying in Wales, be one that you can show you can’t afford
  • be the only one you own
  • not be sub-let or rented out after you buy it

For this part of the Help to Buy scheme, you only need a 5% deposit and the government will lend you up to 20%. You will need to apply for a mortgage from a commercial lender for the remaining 75%.

For the first five years after you take the loan out you will pay no fees – after that, it will cost 1.75% of the outstanding balance each following year.

The Help to Buy mortgage guarantee

Normally when you take out a mortgage, you need to pay at least 10% of the property’s value upfront as your deposit.

With the Help to Buy mortgage guarantee scheme, you only need to make a deposit of 5% which helps first-time buyers who are struggling to find the money to make an initial deposit.

However, unlike the equity loan, the government does not lend you a percentage of the money required.

Instead, your mortgage provider purchases a guarantee from the state which protects them from some financial risk, enabling them to lend you up to 95% of the property’s value.

To be eligible for the mortgage guarantee, the home you wish to buy must:

  • have a purchase price of £600,000 or less
  • be the only one you own
  • not be rented out after you buy it
  • not be bought through shared ownership, shared equity or any other publicly funded mortgage scheme
  • be bought with a repayment mortgage (rather than with an interest-only one)

Further information

Our conveyancing solicitors in Bristol are experienced in all aspects of Help to Buy property purchases. Our charges are transparent and we quote for all fees and disbursements up front, meaning that you’ll understand the full extent of your conveyancing charges from the very start.

To request a free conveyancing quote, call us on 0117 325 2929 or complete the short form below.

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