Home - Future Auctions > Articles > The Help to Buy Scheme
Ad

The Help to Buy Scheme

The UK Government’s Help to Buy Scheme is a series of initiatives to enable UK citizens to be able to purchase their own home. There are four different initiatives, each one aimed at overcoming one of the barriers that prevent people from buying a house or flat. The four different Help to Buy schemes are:

  1. Help to Buy Equity Loans

  2. Shared Ownership

  3. NewBuy

  4. Help to Buy Mortgage Guarantees 

In the case of Equity Loans, Shared Ownership and NewBuy, Wales and Scotland have different schemes than those that are available to people living in England, while the Help to Buy Mortgage scheme is available to everyone living in the UK. Local Help to Buy agents can advise house buyers of what is available in their area. Details of each of the schemes can be found below.

The Property Help To Buy Scheme

Credit Checks

To qualify for any of the Help to Buy schemes homebuyers must be UK citizens and have an unblemished credit record. Those homebuyers with three months’ mortgage arrears or overdue loan payments in the last two years will be excluded from the schemes, as will those with one or more county court judgements (CCJs) worth more than £500 in the last three years. If an individual has been declared bankrupt within the last three years, or has gone into voluntary bankruptcy, he or she is also not eligible to apply for any initiative in the Help to Buy Scheme.

Help to Buy Equity Loans

The Equity Loan Scheme helps homebuyers in England who have difficulty saving more than 5% of an equity deposit for a mortgage. The equity loan available from the Government contributes up to 20% of a property’s value so that homebuyers can access a mortgage of up to 75% to pay for the rest of the property. There is a separate Help to Buy Equity Loans scheme for Scotland and a similar scheme is planned for Wales.

The scheme is open to first time buyers and home movers buying new build homes worth up to £600,000 (£400,000 in Scotland). The new build home must be built by a registered Help to Buy builder and a list of registered builders is available from Help to Buy agents. The Equity Loan Scheme is not available to buy existing property, for second homes or for buy to let properties.

For example, if a homebuyer has a deposit of £10,000, they can purchase a new build home with a value of £200,000 as shown:

Cash Deposit

£10,000

5%

Equity Loan from Govt.

£40,000

20%

Your Mortgage

£150,000

75%

Property Value

£200,000

100%

Equity Loan Fees and Repayment Details

For the first five years of the loan homeowners do not have to pay any fees. However, from the sixth year of living in the property, a fee of 1.75% of the loan’s value will be charged. Based on an equity loan of £40,000, the first year’s fees would total £700. After this the fee will increase each year at the rate of RPI (Retail Prices Index) + 1%. These fees do not count as part of repaying the equity loan. Before the fees start, a Help to Buy agent will contact the homeowner to set up monthly payments with their bank. A statement about the loan will be sent to homeowners every year.

When homeowners wish to sell their home and move elsewhere, the Equity Loan will be repaid from the proceeds of the sale. The amount due to be repaid will depend on the value of the home when it is sold. If the Equity Loan was 20% of the value of the house when it was bought, then the amount to be repaid is 20% of the value of the house when it is sold. So if a £200,000 house was sold for £210,000 the Equity Loan repayment value would be £42,000, as shown below:

Homebuyer buys Property

Homeowner sells Property

Cash Deposit

£10,000

5%

£18,000

8.6%

Equity Loan

£40,000

20%

£42,000

20%

Mortgage

£150,000

75%

£150,000

71.4%

Property Value

£200,000

100%

£210,000

100%

 

If the homeowner does not sell the property and the mortgage period ends, the Equity Loan will be paid back then. It is also possible to pay back 10%, 20% or the total amount of the Equity Loan without selling the property, as long as the Loan is worth at least 10% of the value of the property. Homeowners can talk to their mortgage lender and Help to Buy Agent if they want to repay the Equity Loan in full.

When applying for mortgages in conjunction with the Help to Buy Equity Loan Scheme, homebuyers will be subject to the usual checks regarding affordability of repayments and fees associated with the mortgage.

Buy To Let Scheme

Shared Ownership Schemes

Shared ownership schemes are run in conjunction with housing associations and offer homebuyers the opportunity to buy a share of a property (between 25% and 75% of its value) and pay rent on the remaining portion. Shared ownership schemes are available to households that rent a council or housing association home, earn up to £60,000 per year and are first time buyers or do not currently own a home in the UK or abroad.

High Demand

There is high demand for shared ownership schemes and there are eligibility rules over who can purchase the available homes. In the past, shared ownership schemes were targeted at key workers. Today priority is given to serving military personnel and to other applicants prioritised by local authorities. However, housing providers do not often receive enough applications from social housing tenants and military personnel to fill their available developments, so it is possible for others to access shared ownership schemes.

Over 55s

People aged over 55 can get help from the ‘Older People’s Shared Ownership Scheme’ which works in the same way as other shared ownership schemes, but it is only possible to buy 75% of the total value of the property. Once buyers own 75% they do not have to pay rent on the remaining share.

HOLD

A scheme called Home Ownership for People with Disabilities (HOLD) can help long-term disabled people to buy any home on the market on a shared ownership basis. HOLD is only available in cases where the properties available in the area don’t meet the disabled person’s needs, for example regarding access. A Help to Buy Agent can help homebuyers in these cases.

Getting a Mortgage

Homebuyers will need to get a mortgage for the percentage of the property that they wish to buy. The process of applying for a mortgage is unchanged. You can apply through a bank, mortgage broker or independent financial advisor. The buyers credit history will be checked, along with assessments to make sure they can meet mortgage repayments and all the associated fees, including valuation fees, stamp duty and legal costs.

Buying Additional Shares

Shared ownership homeowners can buy more shares in their home after they have become the owner. This is known as staircasing. The cost of each share will be based on the value of the property at the time when the share is bought. This means that if the value of a property increases, the cost of buying an additional share will be higher than the cost of the first share. However, if the property has dropped in value, the price of additional shares is also lower. To buy an additional share the housing association will ask for the property to be valued and the homeowner will have to pay the valuation fee.

Selling Up

When a homeowner wants to sell a property that was bought through the Shared Ownership scheme, the housing association will become involved. If the homeowner owns 100% of the home they can sell the home themselves, but the housing association has the right to buy back the property first. This applies for 21 years after the homeowner has 100% ownership of the home. If the homeowner only owns a share of the property, the housing association has the right to find a buyer for it.

The housing association will have a short period (normally 8 weeks) to sell the homeowner’s share to someone else wanting to buy through shared ownership. If they don’t find a buyer, the homeowner is free to sell on the open market, with the proceeds split between the seller and the housing association in line with the equity shares in the home.

NewBuy

Under the NewBuy scheme homebuyers can buy a new build property (or a property that is being sold for the first time in its current form, e.g. a flat that used to be part of a house) up to the value of £500,000 with a deposit of 5-10% of the purchase price. The scheme is funded by developers and guaranteed by Government. Developers put 3.5% of the value of every NewBuy home sold into a ‘pot’ that is used to protect the lender in the event of a default.

This scheme is only available to UK citizens who are buying their main home. It is open to first time buyers and existing homeowners and there is no limit on household income. The home must be fully owned by the buyer and the property must have been built by a builder taking part in the Help to Buy scheme. The builder will be able to tell the homebuyer which lender they have ‘teamed up’ with and how to go about getting a mortgage.

Homebuyers will need to get a mortgage for up to 95% of the property that they wish to buy. The process of applying for a mortgage is unchanged. Buyers can apply through a bank, mortgage broker or independent financial advisor. Their credit history will be checked, along with assessments to make sure they can meet mortgage repayments and all the associated fees, including valuation fees, stamp duty and legal costs. NewBuy mortgages are available from lenders such as Santander, Nationwide, Halifax Bank, Woolwich, Aldermore and NatWest.

Help to Buy Mortgage Guarantee

Help to Buy Mortgages were introduced in October 2013 to help house buyers across the UK to access mortgages with a minimum 5% equity deposit. The scheme is available to existing owners and first time buyers who want to buy a house worth up to £600,000.

Unlike the Equity Loan Scheme, Help to Buy Mortgages are available for new build and existing properties. The initiative is a mortgage guarantee scheme that will help homebuyers with smaller deposits to access mortgages at more competitive rates of interest. These mortgages are not available for shared ownership or shared equity purchases, for buy to let properties or to purchase second homes.

A Help to Buy Mortgage is essentially the same as a traditional 95% repayment mortgage, with the usual affordability checks and terms and conditions. Buyers will be assessed to make sure they can meet mortgage repayments and all the associated fees, including valuation fees, stamp duty and legal costs. Individual mortgage lenders will set interest rates and any fees associated with the mortgage independently of the Government.

At the moment Help to Buy Mortgages are available from RBS/ NatWest, HSBC or Halifax Bank of Scotland, with other lenders such as Virgin Money and Aldermore introducing Help to Buy mortgages in 2014.

You are eligible to apply for a Help to Buy Mortgage if:

  • You are an existing home owner or first time buyer

  • You have a minimum 5% equity deposit

  • You want to buy an existing or new build property valued under £600,000

  • You live in the property as your only residence

  • The property is in the UK

  • You borrow from a participating mortgage lender

  • You have an unblemished credit history over the last 3 years.

Future Auctions Newsletter Sign-Up

"Receive FREE Updates
Of All Forthcoming Property Auctions"