arrowright roundtick plus plus house 66 . 7 % cornercurve

Don't let a mortgage get in the way...

Help to Buy Mortgages - Good or Bad?

Are help to buy mortgages a good thing or a bad thing? Find out if they’re right for you here.

Get Started
continue to article

By Pete Mugleston   Mortgage Advisor

Last updated: 7th February 2019 *

Are Help to Buy mortgages good or bad?

We’ve helped lots of homeowners who have come to us with queries about whether Help to Buy mortgages a good idea.  A lot of people worry about Help to Buy mortgage issues such as how much interest they’ll pay back on their loan.

The good news is that the brokers we work with can provide this information, talk you through the available options and calculate which Help to Buy mortgage is most affordable for you, even if you’re been declined or have a bad credit history.

If you are questioning whether a Help to Buy mortgage is a good route for you, then read this guide.

We have gathered all the key information you’ll need to know including:

  • What is a Help to Buy?
  • Should you get a Help to Buy mortgage?
  • Benefits of a Help to Buy mortgage
  • Help to Buy cons
  • What deposit do you need?
  • How much can you borrow on an Equity Loan?
  • How much mortgage can you get?
  • Does a Help to Buy mortgage have to be for a new build?
  • Will Bad credit affect your Help to Buy mortgage?
  • Why you should speak to an advisor about Help to Buy pros and cons
  • Speak to a Help to Buy advisor

You can arrange a no-obligation,  one-to-one chat with one of the expert Help to Buy mortgage advisors we work with here.

Don't let a mortgage get in the way

We’ll find you a qualified and regulated mortgage expert who specialises in cases like yours

  • We don’t charge you anything for our matching service
  • Our form only takes a minute, then let us do the hard work

What is Help to Buy?

Introduced by the government in 2013, Help to Buy (HTB) is a scheme in the UK that aims to help first time buyers or homeowners looking to move home.

Borrowers are required to raise 5% of the property value as a deposit and then the government will loan them up to 20% (or 40% in London.) Any remaining portion of the property value is covered by a standard repayment mortgage.

Should you get a Help to Buy mortgage?

Whether or not a Help to Buy mortgage is a good or bad depends on your own financial and personal circumstances. Before you apply for a mortgage of any kind, it is very important that you are aware of all of the financial implications of that mortgage and to also work out whether you can afford to repay the size of the loan you would like.

One of the  mortgage advisors we work with who specialises in Help to Buy Equity Loans can help you with the right advice.

Benefits of a Help to Buy mortgage

  • You only need to save a 5% deposit so if you’re a first time buyer or someone on a lower income, it could mean that you get a mortgage quicker
  • You only need to borrow 75% of the property value from the lender, which can give you access to cheaper rates
  • The government Equity Loan is interest-free for the first five years
  • You can choose to repay your loan during the term of your mortgage to reduce costs or  repay as a lump sum when you sell your property
  • If you have a “riskier” profile i.e. have “bad credit” you can potentially obtain finance more easily because you’ll have a larger overall deposit

Help to Buy cons 

  • Your interest payments for your equity loan are paid alongside your mortgage payments and do not pay off your loan amount.
  • This amount of interest you pay will increase each year by RPI (Retail Price Index) which can increase or decrease due to inflation, plus 1%
  • After the first 5 years of paying no interest, you'll be charged 1.75% on the outstanding amount which could become difficult to afford as well as your mortgage payments
  • If the property increases in value over time, the loan amount you have to pay back will also increase in line with this
  • There may be fewer lenders to choose from if you should need to refinance as not every lender does Help to Buy

Help to Buy vs. normal mortgage

It can be helpful to talk to one of the  mortgage advisors we work with to compare a range of mortgages and find which one works best for you but for a brief overview of how a Help to Buy versus a 95% mortgage differs, see the table below:

 

Standard mortgage

Help to Buy mortgage

Deposit

5 - 40% dependant on financial circumstances, property value, bad credit and property type.

5%

Property type

Most property types although some lenders can decline mortgages for buildings that aren’t a standard construction

Must be a new build

Monthly repayments

One mortgage repayment

Mortgage repayment and interest payments for the Equity Loan. You can also choose to pay back the loan itself in monthly installments (rather than pay it as a lump sum when you sell your home.)

The above table is for demonstrative and comparative purposes only and while accurate at the time of writing we recommend you consult your lender or broker for the most up-to-date information

What deposit do you need?

One of the benefits and appeals of the Help to Buy Equity Loan scheme is that borrowers are only required to put forward 5% of the properties value as a deposit. See the Help to Buy table below to see how much deposit you may need to save for a particular property price.

Interest rate: 3% (for example purposes only)

Property Value

Deposit size (5%)

Equity Loan 20%

Mortgage loan (75%)

£100,000

£5,000

£20,000

£75,000

£150,000

£7,500

£30,000

£112,500

£200,000

£10,000

£40,000

£150,000

£250,000

£12,500

£50,000

£187,500

£300,000

£15,000

£60,000

£225,000

The above table is for demonstrative and comparative purposes only and while accurate at the time of writing we recommend you consult your lender or broker for the most up-to-date information.

Of course, the size of your deposit (although 5%) will depend on the overall property price and the amount of mortgage you can borrow from any given lender. The larger the mortgage, the larger the amount of money you will need to put forward as your deposit.

How much can you borrow on an Equity Loan?

The amount of money the government will lend you depends on the property value and the part of the UK your property is in.

Area

Maximum loan*

London

£240,000 (40%)

The rest of England

£120,000 (20%)

Wales

£60,000 (20%)

Scotland

£30,000 (15%)

*Correct at time of writing.

How much mortgage can you get?

With a 5% deposit and a 20% Equity Loan from the government, you will need a mortgage of 75%. When a lender assesses your mortgage application they may want to look at how much you earn as they’ll use this to determine how much they can lend you.

Every lender has a different level of generosity but usually most lenders cap their loans at 3-4x your income, although some lenders may consider loaning 5 or 6x your income, in the right circumstances.

See below for an example of how income multiples can affect the amount you borrow and your monthly repayments on your mortgage:

Gross income: £25,000

Interest rate: 3% (for example purposes only)

Income multiples

Loan amount

Monthly payments (mortgage term of 25 years)

X3

£75,000

£356

x4

£100,000

£474

x5

£125,000

£593

x6

£150,000

£711

The above table is for demonstrative and comparative purposes only and while accurate at the time of writing we recommend you consult your lender or broker for the most up-to-date information.

Does a Help to Buy mortgage have to be for a new build?

Yes. Help to Buy Equity Loans are only available for new build properties up to £600,000. This can cause some lenders to view Help to Buy mortgages as a higher risk as in some instances, new builds (including high rise buildings) are often harder to resell.

Lenders will want to consider the potential re-sale of a new build property and the likelihood that someone will want to buy it if you are unable to keep up with your mortgage payments and they have to repossess.

For this reason it can be more difficult to secure mortgages for new builds.

That being said, the advisors we work with have found lenders who are more likely to approve a mortgage for a Help to Buy property, including high rise buildings.

For more information on this talk to an advisor or see our non-standard property section here.

Will Bad credit affect your Help to Buy mortgage?

 “Bad credit” can affect how much you are able to borrow and the amount of interest you pay on a mortgage and in some cases where the credit is severe or very recent, it can prevent some borrowers form being approved at all.

However, we have helped many homeowners over the years who initially believed that they couldn’t obtain a mortgage because of their “bad credit” which has included:

  • Low credit score
  • Late payments
  • Mortgage arrears
  • Defaults
  • CCJs
  • Debt management plans
  • IVA
  • Bankruptcy
  • Repossession

There are specialist lenders who are more likely to approve a mortgage for a borrower with “bad credit” even in cases of bankruptcy.

Before making any mortgage application, it can be helpful to know which “bad credit” has been marked on your report, so you can avoid applying to lenders with less of an appetite to approve that specific type of “bad credit.”

One of the advisors we work with can provide you with a free credit check on:

Get your credit rating


For more information on this, contact a bad credit mortgage specialist. Alternatively, see our bad credit information section.

Why you should speak to an advisor about Help to Buy pros and cons

We choose to only work with whole of market mortgage brokers we trust to find you the best Help to Buy mortgage.

 Here’s how the mortgage advisors we work with can help you:

We’ve helped over 60,000 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 experts on Help to Buy
  • Have completed an OMA 12 module LIBF accredited training course
  • Cover the whole market
  • Help new buyers every week to get their feet on the ladder

Speak to an expert Help to Buy advisor

If you have questions about the Help to Buy mortgage pros and cons 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: 7th 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.

 

Find out more about Help To Buy

Help To Buy Mortgages