The scheme itself will end on 31 March 2023, but those hoping to take advantage of the scheme must now ensure that they reserve the property they wish to purchase and apply for the loan by 6pm on 31 October this year.
A reminder of the Help to Buy Scheme
This is a scheme aimed at helping first-time buyers onto the property ladder by giving access to loans of up to 20% (40% in London) to buy new build homes. There is a limit on the purchase price according to the region the property is in. For example, loans will be available on purchases up to £228,100 in Yorkshire and the Humber and £261,900 in East Midlands.
To apply for a Help to Buy loan, you and whoever buys the property with you must:
- never have owned a home before, either in UK or overseas
- never have had a Sharia mortgage
- be ready to proceed when you get the go-ahead for the loan as you must exchange contracts within three months
- be able to complete the sale within six months of exchanging contracts
How does the Help to Buy Scheme work?
The buyer must pay a 5% deposit on the property and arrange a mortgage of at least 25%. For the first five years of the mortgage, the equity loan is interest-free but a monthly management fee of £1 is payable by direct debit. From year six, the £1 monthly management fee continues, and interest is payable on the equity loan at 1.75% a month until the loan is paid off. The interest rate increases every April, based on the rate of inflation (according to the Consumer Prices Index) plus 2%. You only pay interest on the equity loan from year six, not capital. If you pay off your mortgage, for example, if you sell the property, you will have to pay off the equity loan too. You can pay off your equity loan at any time by paying it all or by making part payments of at least 10% of the market value of the property at any time.
When you pay off the loan, the value will be based on the market value of the property at that time, not the amount you borrowed. So, say your property was £200,000 when you bought it and you borrowed 20% (£40,000) from the Help to Buy Scheme. When you sell the property, it has increased in value to £250,000 and you haven’t made any payments towards the equity loan. The 20% loan you must pay off is then £50,000.
Applying for the Help to Buy loan
Caroline Murray
You can only apply for a Help to Buy loan if you reserve a new build home from a homebuilder which is registered with the Help to Buy Scheme. You will need to apply through a Help to Buy agent.
If you are in the North of England, you can apply here.
If you are in the Midlands, you can apply here.
If you are looking to buy a property using the Help to Buy Scheme 2021 – 2023, you need to ensure that you have found a property and have applied for the loan by 6pm on 31 October this year.
For further information, read the government’s full guide on the Help to Buy Equity Loan Scheme.
For a no-obligation, competitive quotation on buying your first new home using a Help to Buy loan, contact our experts now, or use our online quotation system.
Author: Caroline Murray, partner and head of the property team.
