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Help to Buy - How Much Can You Borrow

If you’re looking for a help to buy, find out how much you can borrow

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By Pete Mugleston   Mortgage Advisor

Last updated: 6th February 2019 *

How much can I borrow on a help to buy?

With the ongoing increase in property prices, the government is taking steps to provide first time buyers with all the help they need to get onto the ladder. One such measure is the Help to Buy scheme, which comes in two forms - Shared Ownership and the Equity Loan.

Got questions about Help to Buy that you need answered? Want to get a better idea of how much you could borrow through the scheme? Do you have a poor credit history or has your application been refused? Just speak to one of the friendly experts we work with. They’ll be able to advise you based on your unique circumstances.

Here’s what you’ll learn in this article:

  • Help to Buy: Equity Loans - what are they, and what are their pros and cons?
  • How much can I borrow? Help to Buy: Equity Loan
  • Help to Buy: Shared Ownership - what is it, and what are its pros and cons?
  • How much can I borrow? Help to Buy: Shared Ownership

What is a Help to Buy: Equity Loan?

A Help to Buy Equity Loan is a shared equity scheme in which the government lends you up to 20% on better terms than you’d get from a conventional lender (15% in Scotland).

This means that your deposit can be smaller, and you can borrow less from the bank or building society.

In England and Wales, the government’s equity loan is interest free for 5 years, and then about 1.75% indexed to inflation, increasing by 1% per year after that until you’ve paid the loan off. In Scotland, the loan is interest free forever.

You have to pay off the loan within 25 years, or when you sell up. You can pay it off in stages, or all in one go.

You need at least 5% for a deposit (on top of your 15% or 20% loan) and will need to borrow the rest from an approved mortgage lender on a repayment basis. In England and Wales, the scheme is only for new builds, but in Scotland, it can be used with resold properties too.

The advantages

  • Lower monthly repayments: The government’s equity loan means that you’ll need to borrow less from your mortgage provider. Not only that, the government’s loan is very competitive - carrying no interest for the first 5 years in England and Wales, and then starting at a rate of 1.75%.
  • You can buy sooner:
    With the government’s initial contribution, you don’t need to save as large a deposit.
  • You can pay it off whenever you want to:
    The process of ‘staircasing’ allows you to buy the government’s share out when the time is right.

The disadvantages

  • It limits your choices:
    You’re limited to builders and lenders who are registered with the scheme. You’re also limited to new build properties in England and Wales, which tend to be more expensive than secondhand properties of an equivalent size and location.
    You’re also more limited on mortgage choice, there are less Help to Buy mortgages available because lenders see new build as a higher risk. .
  • It could become more expensive later:
    In the first 5 years, your government equity loan carries no interest - but after that price will start to rise, year on year - up until you pay off the loan.

    Please note: this does not apply to people in Scotland, in which the rate is interest free for life.

  • The government loan may affect your capital growth:
    The government’s loan is not fixed, and is taken as a percentage of the house’s value. If your house appreciates, and you don’t pay the loan off by the time you sell-up, the government will benefit from any gain in your home’s price (or share in the losses, if your house depreciates).

How much could I borrow with Help to Buy: Equity Loan?

In England and Wales, you can borrow up to 95% of the value of the home from the government and your lender. The government will lend you up to 20%, so you’ll be able to get 75% at most from your lender, with a 5% deposit.

In Scotland, the government will offer you a 15% equity loan at most. This means that, with a 5% deposit, you’ll be able to get a 80% mortgage.

London is also an exception. You still need a 5% deposit, but the government will lend you 40% - which means that you can borrow 55% from a lender to make the deal work.

The maximum value of the property depends where you are in the U.K. In England, the scheme can be used on houses up to the cost of £600,000. In Wales, it’s capped at £300,000, and in Scotland, the ‘threshold’ price cannot exceed £200,000 (though this may be revised in 2021).

There’s no equity loan scheme in Northern Ireland at the current time.

Example: buying a £175,000 house with a 15% equity loan

  Price Percentage
Total price of home £175,000 100%
Your Deposit £8,750 5%
Your Mortgage £140,000 80%
Government Equity Loan £26,250 15%

It’s worth bearing in mind that, the larger your deposit - the better the rate your lender will offer. And, the more you can put down, the more likely the lender is to accept you, based on your ‘affordability’.

Need a little guidance around affordability? Just speak to some of the experts we work with - they can help you plan around your unique circumstances.

What is Help to Buy: Shared Ownership?

Shared ownership is a separate scheme in which, instead of taking a loan from the government for a percentage of the property, you buy shares in a property.

This is usually from a social landlord or registered housing provider (such as a housing organisation) - typically between 25% to 75%.

You pay rent on the other part at a below-market rate. The cost of your mortgage and your rent is usually quite competitive - but you still pay leasehold related costs, such as service charges and ground rent (which is not the same as ‘rent’) at a normal rate.

You’ll like have the option to buy a greater share of the house, as and when you can afford it - this is called ‘staircasing’. Some providers will allow you to buy up to 100%, some won’t.

You can use shared ownership to buy into a new build, or a property that belongs to a housing association that is being resold.

Am I eligible for shared ownership?

  • Your combined annual household income can’t exceed £80,000 (£90,000 in London)
  • You can’t already own another home. You’re allowed to have owned one in the past, and you’re allowed to be moving from a property that’s in another shared ownership scheme.
  • You shouldn’t have any major credit issues (i.e. a recent CCJ or undischarged bankruptcy)
  • Generally, serving military personnel are given priority - in some areas, councils prioritise local residents.

There is an alternative scheme for people over the age of 55 known as ‘Older People’s Shared Ownership’. In this scheme, you can’t buy more than 75% of the property, but you don’t pay rent on the remaining 25% either.

The advantages

  • Lower deposit:
    You only need to secure a mortgage on the part of the property you own.
  • Many of the benefits of home ownership:
    Such as possible capital appreciation on the house, and a more stable tenure than renting.
  • More affordable:
    Shared equity usually results in lower monthly outgoings than renting, and in some cases may be more affordable than a conventional mortgage. This makes it more accessible to people on lower wages.
  • You can buy a larger stake in the house over time:
    In some (but not all) instances you can use ‘staircasing’ to buy an increasingly larger share of your home, up to full ownership. This needs to be agreed with your lender.
  • Tax efficient:
    You don’t usually have to pay stamp duty when buying, provided your share doesn’t exceed 80%.
  • Somewhat flexible:
    You can sell your shares in the house to another buyer at any point - in much the same way that you’d sell a house.

The disadvantages

  • Less choice:
    It can be harder to obtain financing for Shared Ownership, as less lenders offer compatible mortgages.
  • It’s restricted to leasehold properties:
    As such, you’ll have to pay 100% of the ground rent and service charge, regardless of how much of a stake you have in the property.
  • There may be limitations on what you can do with the property:
    As a leasehold, you may need to obtain permission from the freeholder before you may any major improvements and alterations to your home. This is one of the major downsides with Help to Buy

    How much can I borrow with Help to Buy: Shared Ownership?

With Shared Ownership, the amount you borrow is in line with how much of a percentage you want to buy.For example, if you want to buy 50% of a house, you only have to find a provider who will lend you 50%, the rest will be paid in rent at a below market value. Later on, if you want ‘staircase’ to a greater ownership percentage you can explore borrowing more.

Example: How much can I borrow? Help to Buy on a £200,000 property with 50% ownership.

Here you put down a 12.5% deposit and have the option to buy an additional 25% from the builder later.

 

Value

Percentage

Total value of property

£200,000

100%

Your share of property

£100,000

50%

Your deposit

£25,000

12.5%

Your outstanding mortgage

£75,000

37.5%

Share of property you don’t own

£100,000

50%

Additional share of property that you’re eligible to buy

£50,000

25%

Remember, although it’s a government scheme, there’s no government equity loan involved in the Shared Ownership arrangement.

Want to find out if Help to Buy is right for you? Speak to the experts

We’ve helped over 68,000 people find the right mortgage, in fact our customers consistently rate us 5 stars on Feefo, mainly because of the level of service and the fact that we offer   access to leading brokers who:

  • Are industry experts - they’re OMA and LIBF Accredited
  • Cover the whole market
  • Have relationships with all of the Help to Buy approved lenders

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 6th February 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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