Are you hoping to purchase a property but struggling to save for a deposit?
Help to Buy gives you the flexibility of purchasing with as little as a 5% deposit. So what is the scheme and how can you benefit from it?
What is Help to Buy
Help to Buy is a scheme whereby the Home and Communities Agency provide a loan up to 20% of the purchase price of your new home or 40% if you are purchasing in London. This is available on new build properties and you are able to borrow up to £120,000. In addition to the mortgage on your property, the Home and Communities Agency will take an additional charge which will be repaid before or on the sale of the property.
For example, if you purchase a property outside of London, the balance of the purchase money will be made up as follows:
Purchase Price: £175,000.00
Help to Buy Loan: (20%): £35,000.00
Mortgage (75%): £131,250.00
To qualify for the scheme, you must be purchasing a new build property and contribute at least a 5% of the purchase price as a deposit. The remaining 95% will be funded by a mortgage with a Qualifying Lender and the Help to Buy contribution from the Homes and Communities Agency.
The maximum purchase price is £600,000. The scheme is not available to Landlords wishing to let out a second property.
You do not have to be a first time buyer to qualify for the Help to Buy scheme, but you must ensure that you sell any existing property on or before completion of the new build purchase.
Interest on the Loan
If you qualify for the Help to Buy scheme and your application is accepted on the reservation of your new build plot, a charge in favour of the Home and Communities Agency will appear on the title to your property on completion. The Help to Buy Loan will not accrue any interest for the first five years of the term.
After 5 years you will be required to pay an interest fee of 1.75% of your borrowed loan amount each year. This will rise each year in accordance with inflation and plus 1% per year.
Repayment of the loan
The Help to Buy loan is repayable on either the sale of the property or upon expiry of the loan i.e. 25 years from completion of the loan.
The Help to Buy loan is an equity loan which means that the amount required to repay the loan is calculated as 20% of the value of the property at the time of repayment; and not the amount that you initially borrowed.
Using the example above, the amount to be repaid if the property increases in value is calculated as follows:
Property Value at the time of Help to Buy repayment: £190,000.00
Amount required to redeem Help to Buy 20%: £45,000.00
Alternatively, if the property decreases in value, the calculation would be as follows:
Property Value at the time of Help to Buy repayment: £160,000.00
Amount required to redeem 20% Help to Buy: £32,000.00
For further information on the scheme, please click here
If you are thinking of purchasing a new build property or looking to make a reservation on a plot with or without the help to buy scheme, contact our Specialist New Build Conveyancing Team on 0113 244 9931.