Help to buy
Government-backed mortgage schemes
Although the Mortgage Guarantee scheme closed in December 2016, the Equity Loan scheme and the Shared Ownership scheme are still in operation.
Help to Buy: Equity Loan scheme
This scheme, which is currently set to operate until 2021, is designed to help those who only have a small amount available as a deposit and who want to buy a ‘new build’ property from a registered Help to Buy builder.
In England, the government will lend you up to 20% of the purchase price interest-free for the first five years, providing you can put down a deposit of at least 5%. In year six, you will be charged 1.75%, which climbs at a rate of 1% of that figure, plus any increase in inflation (measured by the Retail Prices Index), every year thereafter. In London, you can borrow up to 40% of the purchase price. This means you will need a mortgage for 75% of the purchase price (or 55% if you’re buying in London) and this must be a repayment mortgage to qualify. The scheme is available on properties with a purchase price of up to £600,000.
The scheme operates slightly differently in Scotland, where the government takes a 15% stake and the maximum value of the property depends on the year in which your application is completed (for 2017/18, it’s £200,000 if completed on or before 31 March 2018, for 2018/19 it’s £175,000 if completed by 31 March 2019). In Wales, the scheme applies on homes costing up to £300,000.
Help to Buy: Shared Ownership
This scheme helps those on lower incomes and first-time buyers who might not otherwise be able to get onto the housing ladder to purchase a property, and is a cross between buying and renting. Many of the major lenders will grant mortgages for a shared ownership home.
Under the scheme, you can buy between a quarter and three-quarters of a property, with an option to purchase a bigger share of the property at a later date. You’ll need to take out a mortgage to pay for your share of the property’s purchase price and then pay rent on the remainder. So, for example, if a property within the scheme is worth £200,000 and you bought 50% of it, you will pay rent on £100,000. If the rent charged by the housing association share is charged at 3%, then you would pay £3,000 a year in rent, as well as repaying your mortgage.
Most of the properties available under the scheme are new build, but some are properties being resold by housing associations. The rules of the scheme operate differently in England, Scotland, Wales and Northern Ireland.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.