FAQ: What Is The Government Help To Buy Scheme?

Wednesday 23rd September 2020

One of our most frequently asked questions is “what is the government Help To Buy scheme?” 

Essentially it is a scheme that has been implemented to help first time buyers to get onto the property ladder. By providing financial help to assist buyers to get a property with just a 5% deposit

Not to be confused with the Help to Buy ISA, with the Help to Buy equity loan the government lends you up to 20% (40% if you’re in London) of the cost of your new home. 

You will be required to pay at least a 5% deposit and arrange a mortgage of up to 75% to make up the rest. For the first five years of owning your home the loan will be interest free. However, after this time, you’ll be charged a 1.75% fee of the loan value, that will then increase each year in accordance with the retail prices index. 

It is worth noting that, with the government Help To Buy scheme, although you may have purchased your house at £200,000, and you borrowed £40,000 with a 20% equity loan. 

If your house is valued at £250,000 when you come to sell it, you will be required to pay 20% of the selling price, meaning that you will need to pay back £50,000. A £10,000 difference to what you initially borrowed. 

Requirements Of A Help To Buy Equity Loan

Additionally to the requirements involved in the amount of money each party needs to put forward, something to remember is that the government Help To Buy scheme is only available on new build homes that are valued at less than £600,000. 

You mustn't rent out an existing property to buy a second home through the scheme, or on the contrary shouldn’t sublet your Help To Buy home either. 

More information on the requirements of the government Help To Buy scheme can be found on the Share to Buy website.

Difference Between Help To Buy Scheme and Shared Ownership

As the name suggests, a shared ownership means that you only own a share, rather than the whole property, unlike the Help To Buy scheme. In a shared ownership, costs will involve repaying your mortgage whilst at the same time paying rent to the housing association that owns the other share of your home. 

A shared ownership house can often work out more expensive than being the official owner, that’s because you only own a share of the property but are still required to pay a full service charge and council tax.

A Help to Buy: Shared ownership scheme is a great alternative to a traditional Help To Buy scheme if you can’t afford to pay 100% of the mortgage on a home from the start. Although, it allows you to buy larger shares of the house in the future when you can afford to (this is known as ‘staircasing). 

With shared ownership, unlike the Help to Buy equity loan, when it comes to selling your property, you will need to have this independently valued. From then, depending on the housing association, those registered with them can often be offered first refusal.

However, if nobody in the housing association shows interest, the property can then be put on the market and be advertised through an estate agent. 

The benefit that both of these schemes provide is the opportunity for remortgaging in order to gain a larger share of the property, from the government or the housing association. 

When you can afford to staircase your shared ownership property to 100% this will help you become eligible for a standard mortgage with better rates.

Although remortgaging is available with the help to buy equity loans, it can often be a little harder than shared ownership. As lenders will require borrowers to pay off the 20% equity loan in full before lending money, which some people may not be able to afford to do all at once. 

 

Whilst we can explain to you what the government Help To Buy schemes involve, it’s important to seek professional, legal advice if you’re looking to take up one of these affordable housing schemes in Plymouth. However, if you’ve recently purchased a house either using a government Help To Buy scheme or not, and are looking for a Plymouth removal company to help you move, get in touch with Hackworthy & Son’s today on 01752 547432 or email enquiries@hackworthy.co.uk.