What is Help to Buy?
In a nutshell, Help to Buy is a collection of government schemes introduced to help people get on the property ladder. You might also be able to take advantage of the initiative if you already own a home but need some help with your next move. There are three main areas to the scheme, and understanding how each one works will allow you to determine your Help to Buy eligibility.
The types of Help to Buy Scheme
Help to Buy: ISA
Available to first time buyers, the Help to Buy: ISA gives you a 25% boost if you’re saving towards a deposit. A range of banks and building societies offer the ISA, and the bonus can be claimed by each first time buyer. This means that if, for example, you’re buying with your partner, the Help to Buy rules state that you could both claim a bonus of up to £3,000. You can save up to £200 per month into the ISA, but you can pay in £1,200 in the first month to give it a kick-start. When you’re about to buy your first home, your conveyancer will obtain your government bonus and add it to the funds you’re putting towards your home.
As well as being a first time buyer, you need to be 16 or over and a UK resident with a National Insurance number to be eligible. You can’t own property anywhere else in the world, or have another active cash ISA in the same tax year. There are other aspects of the Help to Buy criteria which apply to the property you’re purchasing. It must be in the UK, have a purchase price of up to £450,000 in London and £250,000 anywhere else, be the only home you own, and where you intend to live. It must also be purchased with a mortgage. If you want to see how much your government bonus will be based on your savings, you can use a Help to Buy ISA calculator.
Help to Buy: Shared Ownership
This scheme offers you the chance to buy a share of your home between 25% and 75% of its value, and pay rent on the rest. Available for purchasing a newly built home or an existing one through housing association resale programmes, it could be a good option if owning 100% of a property is too much of a stretch financially. To be eligible for Shared Ownership, your household’s combined annual earnings need to be £80,000 or less, with this figure rising to £90,000 in London. You can qualify if you’re a first time buyer, you owned a home previously but need financial help now, or if you’ve already used the scheme and are looking to move.
If you’ve been in the armed forces Help to Buy could give you an extra boost, as military personnel are given priority through Shared Ownership. There’s also assistance for people with disabilities in the form of Home Ownership for People with Long-Term Disabilities (HOLD), while there’s Older People’s Shared Ownership if you’re aged 55 or over.
Help to Buy: Equity Loan
If you’re looking to buy a newly built home but need some help with the deposit, this branch of the Help to Buy scheme could be for you. It’s available to first time buyers and homeowners who’d like to move to a new build that costs up to £600,000 – as long as you’re not going to let the property. The government will lend you up to 20% of the cost of the house, leaving you with a 5% deposit and 75% mortgage to cover the rest of the purchase price. The Help to Buy: Equity Loan can be very appealing, because there aren’t any loan fees to pay for the first five years you own your home.
The reason it’s called an equity loan is because the government’s share in your home is based on its value – whether it rises or falls. If you decide to sell your house, the amount you pay back to the government correlates to the percentage they lent you, rather than the value. So if your property’s gone up in value, the government will receive more than they loaned you, and by the same token, they’ll receive less if your home’s decreased in value.
If you want to figure out what kind of a mortgage you can get by using the scheme, you can enter your details into a Help to Buy calculator. The government’s website has a Help to Buy equity loan calculator that you can use to you determine your potential payments. The Help to Buy scheme Wales offers is slightly different, and in Scotland and Northern Ireland too, which is something to keep in mind if you live here.
Help to Buy in London
As property prices in the English capital are generally much higher than anywhere else in the UK, the government has increased the maximum equity loan for Help to Buy London houses to 40%. This means you could get a Help to Buy mortgage for as little as 55% if you’re buying in any London borough.
Own Your Home
If one of the schemes above doesn’t suit you, there may still be the opportunity to get some help in another way. Head to the government’s Own Your Home website and answer a few quick questions to see if there are any incentives that can help you get on the property ladder.
The pros and cons of Help to Buy
• It can be easier to get onto the property ladder.
• There are a number of different schemes, so you can choose the one that best suits your needs – whether it’s the Help to Buy: ISA, Help to Buy: Equity Loan or Help to Buy: Shared Ownership.
• You’re effectively getting a much higher rate of interest on your savings with the ISA.
• You can buy a home with as little as 5% as a deposit, which is a big draw for first time buyers.
• The equity loan comes without any fees for the first five years, and can count towards your deposit, meaning you don’t need an expensive 95% mortgage.
• You can still own 100% of your home with two of the schemes, although shared ownership means you can still get on the property ladder if you can’t afford that.
• You won’t usually have to pay Stamp Duty Land Tax if you buy through shared ownership.
• The equity loan is only available for new build properties.
• You can only claim the ISA bonus on properties up to £250,000, or £400,000 in London.
• You need to repay the equity loan in chunks of at least 10%, and the annual 1.75% fee on the outstanding amount after the first five years becomes more expensive over time.
• You won’t own 100% of your home with shared ownership, but you will have to pay 100% of the ground rent and service charge no matter how big your share is.
• Not all lenders offer shared ownership mortgages, although the number of those who do is rising.
• Stamp duty Land Tax will become payable on the whole value of your property once you own 80% of your shared ownership property.
Help to Buy: frequently asked questions
How do Help to Buy deposits work?
If you’re struggling to save for a deposit towards your first home, the government’s Help to Buy scheme should help.
The Help to Buy: ISA pays a 25% bonus on the money you save towards a deposit for your first home, but you can’t use that bonus as part of your actual deposit. Instead, the money is added to the funds you’re putting towards your new house on completion. The deposit you need to find towards your first home will be the same as if you didn’t have the ISA.
Otherwise, the Help to Buy: Equity Loan scheme could be an option, whether you’re a first time buyer or existing homeowner looking to purchase a new build costing up to £600,000. You could contribute just 5% by way of deposit to your new home with this loan, which doesn’t have any interest for the first five years you’re paying it back. With a shared ownership property, you can also put down as little as 5% of the property price as a deposit, while choosing between 25-75% of the ownership share in your home.
How do mortgages work with Help to Buy?
Firstly, it’s worth clearing up that you do need to be on the mortgage for a property if you benefit from one of the schemes. You should also know that you aren’t required to take out a mortgage with the bank or building society your ISA is held with.
If you take out a Help to Buy: Equity Loan, you’ll need a mortgage for whatever’s left after your deposit and the government’s loan is added together. You can only take out a repayment mortgage if you’re receiving an equity loan. However, the loan can count towards your finances which means you can get access to mortgages with better rates than if you only had a 5% deposit. With Help to Buy: Shared Ownership, you need to take out a mortgage to pay for the share of your home you wish to purchase. Or, if you have enough money saved, you could pay for your share outright without a mortgage.
How does Help to Buy affect conveyancing?
As your conveyancer ought to be well-versed in how the government’s schemes work, they should be able to easily take care of the paperwork involved in things like claiming bonuses. Help to Buy will affect the details of how your purchase is put together in some way, but it shouldn’t cause any problems or create major delays as long as the lawyer has experience in acting on these transactions.
Your conveyancer’s likely to charge you a fee in order to deal with certain aspects of the Help to Buy scheme you’re benefitting from. There are rules in place that prevent these fees from being too high. For example, conveyancers aren’t allowed to charge any more than £50 + VAT to process the bonus application on your Help to Buy: ISA.
Is there Stamp Duty Land Tax on Help to Buy properties?
One of the biggest upfront costs associated with buying a house can be Stamp Duty Land Tax. A tax which is based on the purchase price of your property, it works the same way with Help to Buy houses as with any other home. However, there are a couple of important things to note, particularly if you have a Help to Buy: ISA. You need to be a first time buyer to save into one of these accounts, and first time buyers are exempt from paying stamp duty land tax on the first £300,000 of a property up to £500,000.
If the government is lending you money through an equity loan, stamp duty land tax works the same way as with normal, with the relief for first time buyers. However if you’re entering a shared ownership deal, there are two options for stamp duty. You can either make a one-off payment called a market value election, or pay it in stages. With the latter, the amount of stamp duty land tax owed will go up if your property increases in value, while stamp duty land tax on the whole value is due when you own 80% or more of your home.
When does Help to Buy end?
The Help to Buy scheme has constantly evolved since it was first introduced, with one element – the mortgage guarantee – closing at the end of 2016. However, other branches of the scheme remain open, including the Help to Buy: ISA, which you can take advantage of until 30 November 2019. After that date, you won’t be able to open a new ISA, but you can continue to save into an existing account until 30 November 2029. All bonuses relating to the scheme must be claimed by 1 December 2030, so it’s worth keeping that date in mind.
In July 2018, the Ministry for Housing, Communities and Local Government issued a statement to affirm their commitment to the equity loan scheme, which is set to continue until 2021. The scheme may be extended beyond that, which would be a boost for both prospective buyers and developers. At the moment, there’s no date for the shared ownership branch of Help to Buy to finish. As this scheme is probably the least risky one for the government to offer, and is available through various Help to Buy agents around the country, there’s a good chance that shared ownership will continue for longer than the other schemes.
Disclaimer: The article above is only a rough guide to give you some idea of the of what is involved with Help to Buy Schemes and conveyancing.