Help To Buy Mortgages Explained
With the deadline for Help to Buy now passed, get expert advice from a specialist broker on all the available alternatives
How will you be using the property?
Author: Pete Mugleston
CeMAP Mortgage Advisor, MD
Reviewed by: Aaron Forster
Independent CeMAP Mortgage Advisor
With the Help to Buy scheme shortly due to close, there’s a flurry of interest from first-time buyers. If you’d like to know more about equity loans and need to learn the essentials quickly, you’re in the right place.
In this in-depth guide, we’ll explain how the scheme works, who is eligible, and how to get a mortgage once your equity loan has been approved. If you need any more information, we can connect you with a Help to Buy expert.
Important
*UPDATE 02/05/2023: The deadline to apply for a Help to Buy Equity Loan has passed, and the scheme has ended. Check out our guide to other government schemes for first-time buyers you can use.
In this article:
- What is Help to Buy?
- What is a Help to Buy mortgage?
- Eligibility criteria
- Benefits and downsides
- How much can you borrow?
- Work out your maximum borrowing
- How to get a Help to Buy mortgage
- Lenders that offer Help to Buy mortgages
- Alternatives to consider
- Selling a home bought through the scheme
- Remortgaging after Help to Buy
- Get matched with a Help to Buy specialist
- FAQs
What is Help to Buy?
Explained that Help to Buy is a government scheme to help first-time buyers with small deposits get a more affordable mortgage. The government provides an equity loan for a portion of the property price, which is interest-free for the first five years, so you can get a smaller, cheaper mortgage on the remaining portion.
There are some limitations:
- The property must be your first home
- It must be in England (though Wales has its own Help to Buy scheme)
- It must be a newly built property from a participating developer
If you’re buying in London, you can get an equity loan of up to 40% of the property value (meaning you’ll need a mortgage for up to 55%). Outside of London, you can get an equity loan of up to 20% of the property value (so you’ll need a mortgage of up to 75%).
How it works
To explain the scheme in numbers, let’s use the example of buying a £200,000 home.
- You’ll need a 5% deposit – £10,000
- The government will provide a 20% equity loan – £40,000
- You’ll need a mortgage for 75% – £150,000
Your mortgage repayments will be lower for two reasons:
- Your mortgage is only £150,000, whereas, without the scheme, you’d need a £190,000 mortgage
- Mortgage rates are typically lower for 75% mortgages than 95% mortgages, so you’ll pay less interest on the loan
Since the equity loan is interest-free for the first five years, you can be sure you’ll save money for these five years (although you’ll pay a £1 monthly management fee).
When is the deadline?
The final deadline to apply is 31 October 2022. Within four working days, you will be given Authority to Proceed. From this point, you have three months to get your mortgage approved and exchange contracts. Your completion date must be on or before 31 March 2023, when the scheme ends.
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What is a Help to Buy mortgage?
In addition to your equity loan and deposit, you’ll need a mortgage. Less than half of UK lenders can provide mortgages compatible with Help to Buy equity loans, so their products are called Help to Buy mortgages.
Help to Buy mortgages are available in all the same variations as standard residential mortgages, so you can get a fixed-rate mortgage, a tracker mortgage, or a discounted variable-rate mortgage.
Eligibility criteria
To access the Help to Buy initiative, you must be:
- 18 or over
- A UK resident
- A first-time buyer
Benefits and downsides
- You can buy a home with a small deposit, which may help you to buy sooner
- You may get a lower mortgage rate because of the equity loan
- Equity loans are available to all first-time buyers, regardless of income
- Equity loans are interest-free for the first five years, and low interest after that (starting at 1.75%)
- You can pay off your equity loan whenever you want (though there’s a £200 fee for each repayment)
- Unlike other government schemes, e.g. Shared Ownership, you’ll legally own 100% of your home
How much can you borrow?
Let’s look at the Help to Buy equity loan first and then at the amount you can borrow for your mortgage.
Help to Buy equity loan.
Each region of the UK has a price cap, i.e. a limit on the total value of the property you can buy with Help to Buy, which is 1.5x the average forecast first-time buyer price for that region. The equity loan you can get in London is larger than outside London.
So, the maximum equity loan in different regions is as follows:
| Region | Price cap | Equity loan % (up to) | Max. equity loan |
|---|---|---|---|
| North East | £186,100 | 20% | £37,220 |
| North West | £224,400 | 20% | £44,880 |
| Yorkshire and the Humber | £228,100 | 20% | £45,620 |
| East Midlands | £261,900 | 20% | £52,380 |
| West Midlands | £255,600 | 20% | £51,120 |
| East of England | £407,400 | 20% | £81,480 |
| London | £600,000 | 40% | £240,000 |
| South East | £437,600 | 20% | £87,520 |
| South West | £349,000 | 20% | £69,800 |
Help to Buy Mortgage
You can get a Help to Buy mortgage for up to 4.5x your annual salary (or if you’re buying with another person, your combined salaries). For example, if your annual salary is £30,000, you could get a Help to Buy mortgage of up to £135,000. If you and your partner’s combined salaries are £60,000, you could get a Help to Buy mortgage of up to £270,000.
This table shows the salary needed to get a 55% or 75% mortgage of the maximum regional price cap:
| Region | Price cap | Mortgage % | Mortgage £ | Salary required |
|---|---|---|---|---|
| North East | £186,100 | 75% | £139,575 | £31,017 |
| North West | £224,400 | 75% | £168,300 | £37,400 |
| Yorkshire and the Humber | £228,100 | 75% | £171,075 | £38,017 |
| East Midlands | £261,900 | 75% | £196,425 | £43,650 |
| West Midlands | £255,600 | 75% | £191,700 | £42,600 |
| East of England | £407,400 | 75% | £305,550 | £67,900 |
| London | £600,000 | 55% | £330,000 | £73,333 |
| South East | £437,600 | 75% | £328,220 | £72,933 |
| South West | £349,000 | 75% | £261,750 | £58,167 |
Work out your maximum borrowing.
If you’d like a more precise estimate of how much you could borrow, enter your salary (and your partner’s, if you’re buying with someone else) into the calculator below.
Help to Buy Mortgage Calculator
Our Help to Buy calculator can tell you whether the mortgage you need is affordable with your equity loan amount factored in.
Help to buy loan value:
Mortgage requirement:
How much can I borrow?
Lower range borrowing:
Higher range borrowing:
Your maximum borrowing is unlikely to match the property price when combined with your deposit funds and equity loan. Speak to a broker to find out what options are available.
Now that you have a rough idea of your maximum borrowing with your Help to Buy equity loan factored in, it's a good idea to speak to a mortgage broker who specialises in the scheme. They can provide you with bespoke calculations and make sure your get the best deal with the time comes to apply for your mortgage.
How to get a Help to Buy mortgage
There are three steps to successfully securing your mortgage before the deadline.
Find a property
You’ll need to find a home builder registered with the Help to Buy scheme and view the available properties. Once you’ve found one you like, you can reserve it while you complete the other steps.
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Lenders that offer Help to Buy mortgages
Many mainstream and specialist lenders offer Help to Buy mortgages. These include Nationwide Building Society, Accord Mortgages, Barclays Bank, Aldermore, NatWest Bank, and Halifax Building Society.
Which lender provides the best Help to Buy mortgage depends on your circumstances. Your source of income and credit history are two major factors, as different lenders may view your creditworthiness differently. Speaking to a broker is best if you need help comparing mortgages.
Alternatives to consider
If you decide that Help to Buy isn’t right for you, you might consider two other government schemes:
Until the end of 2023, the government is incentivising lenders to offer 95% mortgages by guaranteeing the portion over 80% (so the lender is not at risk of loss on this portion). This means you could get a 95% mortgage without an equity loan. Read more about 95% mortgages.
Selling a home bought through the scheme
You’ll need to pay off the government equity loan when you sell your home. The amount you owe is not necessarily the amount you borrowed. If you borrowed 20% of the property’s purchase price, you owe the government 20% of the selling price of the property.
For example, if you bought the property for £200,000, with an equity loan of £40,000, and you are selling the property for £220,000, you owe the government £44,000. Your house has increased in value by 10%, so the repayment due has increased by 10%, too.
When you want to sell your home, you’ll need to notify Target, the agency that handles administration for HCA, the organisation that provides the loan. You’ll need to arrange a surveyor’s valuation and send this to Target, along with the offer you’ve received. You’ll pay an admin fee of £200.
Remortgaging after Help to Buy
Remortgaging a home you bought with Help to Buy can be difficult. Few lenders offer Help to Buy remortgage deals, particularly if you have not yet paid off your equity loan. Those that do might charge higher fees and rates to Help to Buy customers. You must also pay a remortgage fee of £115 to the Help to Buy scheme.
So, you’ll need to consider whether remortgaging outweighs the costs of sticking with your current mortgage once it has deferred to your lender’s standard variable rate. This math can be complicated, so you may want to ask a broker for their expert opinion.
See our dedicated article on remortgaging after using a Help to Buy scheme to find out more.
Get matched with a Help to Buy specialist
Not all brokers can help you proceed with a Help to Buy mortgage application. You’ll need a broker with ‘whole of market’ access, and it will be extremely helpful if they have previous experience with the scheme.
We work with numerous brokers who are Help to Buy specialists. If you’d like their expert advice, we can connect you for a free, no-obligation chat. First, we’ll need a few details about you and your mortgage. Call us on 0330 818 7026 or enquire online to get in touch.
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FAQs
The government has not yet announced plans to extend or replace the scheme once it ends in 2023. So, if you’d like to buy a home with a Help to Buy equity loan, it’s crucial to get your application in before the end of October 2022.
As a first-time buyer, you’re entitled to stamp duty relief if you buy a home for less than £300,000. That means the Help to Buy customers in most regions will pay no stamp duty.
If you buy a home worth between £300,000 and £500,000, you’ll get a first-time buyer discount of £5,000 on the stamp duty for the property. If you’re buying a home worth over £500,000 (which only applies to Help to Buy customers in London), you’ll get no reduction in stamp duty.
Finding a buyer won’t be harder, as you can sell your home on the open market like any other. The selling process is a little more complex if you haven’t repaid your equity loan, as you’ll need to do that now. This can add to the time and cost of selling your home.
Yes, the Welsh government is running a scheme very similar to that available in England. If you live in Wales and want to use this scheme, the latest phase (3) will remain open until September 2026. The scheme provides an equity loan equal to 20% of the purchase price (up to). To qualify, you must also have at least a 5% deposit and use a repayment mortgage for the remaining balance.
No, the Help to Buy scheme in Scotland is now closed. However, the Low Cost Initiative for First-Time Buyers Scheme (LIFT) is still available. If you’d like more information about how this works, get in touch, and we’ll arrange for one of our brokers to contact you directly.
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Pete Mugleston
CeMAP Mortgage Advisor, MD
Pete, a CeMAP-qualified mortgage advisor and an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete successfully went the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained and his love of helping people reach their goals led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!
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