What is Help to Buy?
Help to Buy is equity loan assistance to home buyers from the Homes and Communities Agency (HCA).Help to Buy makes new build homes available to all home buyers (not just first time buyers) who wish to buy a new home, but may be constrained in doing so – for example as a result of deposit requirements – but could otherwise be expected to sustain a mortgage. Up to a maximum of 20% of the purchase price is available to the buyer through an equity loan funded by the Government through the HCA.
Help to Buy is available in England from house builders registered to offer the scheme. Help to Buy will run from 1 April 2013 until 31 March 2016 (or earlier if all of the funding is taken up).
This guide provides an overview of the product. If you’d like to know more, or if you want to apply, please contact your local Home Buy Agent.
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APR 5.2% typical
Help to Buy overview
With Help to Buy, the buyer (‘you’) buys a new home on a new build development with assistance from the Homes and Communities Agency (‘the Agency’) in the form of an equity loan.You must take out a first mortgage (with a qualifying lending institution e.g. a bank or building society). This mortgage, together with any cash contribution from you, must be a minimum of 80% of the full asking price. The maximum full purchase price is £600,000. Your mortgage must be on a repayment basis.
The Agency will provide an equity loan to fund the balance needed to make up the full purchase price of your home, up to a maximum of 20% of the full purchase price.
The equity loan must be paid after 25 years or earlier if you sell your home. You must repay the same percentage of the proceeds of the sale to the Agency as the initial equity loan (i.e. if you received an equity loan for 20% of the purchase price of your home, you must pay 20% of the proceeds of the sale).
The equity loan is interest free for the first 5 years. After that, you will pay a fee of 1.75% rising annually by the increase (if any) in the Retail Price Index (RPI) plus 1%.
Local Home Buy Agents will assess and approve your purchase for Help to Buy and you need their approval before you proceed with the buying process.
How does it work?
Help to Buy enables buyers to purchase a new property, funded by a repayment mortgage and with help from the Agency.
This enables buyers to take out a mortgage on which you make repayments in the normal way. Your mortgage lender is likely to require that you contribute a deposit of at least 5% of the full purchase price and your mortgage and deposit must cover a combined minimum 80% of the total purchase price. The rest of the purchase price will be paid for with an equity loan from the Agency. Your first mortgage payment must be a repayment mortgage. You are not permitted to buy a Help to Buy property with an interest-only mortgage.
As a result of providing this assistance, the Agency has an entitlement to a share of the future sale proceeds equal to the percentage contribution required to assist your purchase. Examples of this are shown below.
For the first five years of Help to Buy home ownership there is nothing for you to pay on the amount that the Agency contributed to your purchase.
After five years, the equity loan will be subject to a fee (collected from you on behalf of the Agency by the Post Sales Home Buy Agent) of 1.75% per annum on the outstanding amount of the equity loan. From the fifth anniversary of the loan this fee will increase (if any) in RPI plus 1%.
When you sell your Buy to Help home (unless you have chosen to repay your equity loan earlier), you must repay the Help to Buy assistance from a share of the sale proceeds. So, if the Agency assisted your purchase with a 20% contribution, your repayment will be 20% of the total market value when it is sold.
Following the purchase you can choose at any time to make voluntary part repayments (‘staircasing’ or a full repayment) of the Help to Buy assistance at the prevailing market value. The minimum voluntary repayment is 10% of the market value at the time of repayment.
The Agency’s entitlement to a share of the future proceeds is secured through a second charge on your home. This is done in the same way that your mortgage lender will secure its lending through a first charge on your home. Although, if you buy through Help to Buy, you will have a mortgage for less than the full purchase price of the property, you will be the legal owner with 100% title to your home. The Table below shows how it works:
| Example of Help to Buy home ownership | £ | % |
| Open market price of new home | 200,000 | 100 |
| Help to Buy mortgage at 75% | 150,000 | 75 |
| Help to buyer pays 5% deposit | 10,000 | 5 |
| Help to buyer total contribution | 160,000 | 80 |
| Agency Help to Buy assistance 20% equity loan | 40,000 | 20 |
In this example, the Help to Buy buyer has purchased a £200,000 home with a deposit of £10,000 and a repayment mortgage of £150,000. The Agency has contributed an equity loan totalling £40,000 or 20% of the total price.
In this example, when the home is sold, the Agency will be entitled to 20% of the total sale price.
Because Help to Buy assistance is through an equity loan, the amount required to increase your equity share will be dependent on the total value of the property at the time you want to redeem part of your equity loan (sometimes know as 'staircasing') or repay in full. The amount you need to do this will increase if your home increases in value and decrease if its value falls.
Who can take part in this scheme?
It is open to all buyers seeking a new build home.
Help to Buy buyers must be able to fund up to 80% of their selected property through a conventional repayment mortgage. Interest-only mortgages are not permitted for Help to buy.
Buyers must take out a first charge repayment mortgage with a qualifying lender. The maximum purchase price is £600,000.
The Local Home Buy Agent will carry out an assessment of an application by a potential Help to Buy buyer to ensure that they are in a position to afford a conventional mortgage for their proposed purchase. This protects tax payers’ investment in the Help to Buy home.
You must have access to a minimum 5% deposit. It is very unlikely that your lender will allow you to proceed without a deposit and you are advised not to consider a Help to Buy purchase unless you have access to a deposit.
The property purchased must be your only residence. Help to buy is not available to assist but-to-let investors or those who will own any property other than their Help to buy property after completing their purchase.
You cannot rent out your existing home and buy a second home through Help to Buy.
Applicants who make fraudulent claims for Help to buy assistance will be liable to criminal prosecution.
Fraudulent claims will always require immediate repayment of the Help to Buy equity loan assistance.
