What is the Help to Buy scheme?
Help to Buy is a scheme that allows first-time buyers to purchase a new-build home with a 5% deposit. This guide is primarily about the English scheme, but you can find more about the Welsh equivalent below.
In England, the Help to Buy scheme works like this:
- You put down a deposit of at least 5% of the property's value.
- The government lends you a maximum of 20% (or 40% in London) of the property's value as an equity loan.
- You take out a mortgage to cover the rest of the purchase price. So if you put down a 5% deposit and take out a 20% equity loan, the mortgage will need to cover the remaining 75%.
Help to Buy application deadlines
The government launched Help to Buy in April 2013 for first-time buyers and existing homeowners. In April 2021, the scheme was limited to first-time buyers and regional price caps were introduced.
Help to Buy will officially end on 31 March 2023, and several deadlines are in place to ensure buyers will have enough time to complete their purchases. These are as follows:
- 31 October 2022: the final deadline to reserve a home and submit a Property Information Form to your Help to Buy agent.
- 31 December 2022: the date the property must be ready for practical completion - this means it must be fully built and ready to live in.
- 31 March 2023: the final date to complete your purchase and move into your home. If you don't complete by this date, you won't be able to get an equity loan.
Price caps on Help to Buy homes
Homes sold under the Help to Buy scheme must adhere to the following regional price caps, which came into force in April 2021.
|Yorkshire and the Humber||£228,100|
|East of England||£407,400|
Am I eligible for Help to Buy?
To be eligible for Help to Buy, you need to be buying a new-build home and also must:
- be a first-time buyer
- have a deposit of at least 5%
- be buying a home for less than the price cap in your region
- be purchasing a property you intend to live in most of the time
- not let out the property or use it as a second home
- take out a mortgage with a term of no longer than 35 years.
How Help to Buy equity loans work
Help to Buy equity loans are for a percentage of the property value, rather than a set cash amount. This means you could end up paying back more or less than you borrowed, depending on whether your home rises or falls in value.
For example, if you take out a 20% equity loan to buy a property worth £200,000 (£40,000), and the property has risen in value to £250,000 when you come to sell, you'll have to repay £50,000.
How to repay a Help to Buy equity loan
Equity loans must be repaid in full after 25 years, when your mortgage term finishes, or when you sell your home – whichever happens first.
As the loan is for a percentage of the property price rather than a set cash value, you will repay the market value of the loan at the time, rather than the amount you originally borrowed.
You can also choose to repay part of the loan early in chunks of either 10% or 20% of the total property value.
Interest on Help to Buy equity loans
Help to Buy equity loans are interest-free for the first five years.
From year six, you'll start paying interest at 1.75% of the loan. This rises each year by any increase in the Retail Prices Index (RPI) plus 1%.
In its calculations, the government uses a representative example RPI of 5%, meaning the rate of interest would increase by 6% each year if RPI stayed at that level.
The table below shows the projected equity loan interest payments on a £200,000 home with a 20% equity loan (£40,000) outstanding.
|Year||RPI+1%||Annual interest||Annual cost (interest plus £1 a month management fee)|
Interest on more expensive properties in London
If you have a larger equity loan, your monthly interest payments will be higher. With the maximum Help to Buy limit set at £600,000 in London, buyers in the capital could find themselves paying thousands in interest each year.
The table below shows the year six costs for more expensive homes bought using Help to Buy.
|House price||Equity loan||Year 6 total cost (interest plus £1 a month management fee)|
Remortgaging with a Help to Buy equity loan
If you take out a fixed-rate mortgage on a Help to Buy property, you'll need to consider remortgaging before you're transferred on to your lender's (more expensive) standard variable rate at the end of your fixed term.
Unfortunately, many lenders don't offer Help to Buy remortgaging deals. The vast majority of those that do lend will require you to pay off the equity loan in full, either by taking out a larger mortgage and using some of that cash, or by using the equity you've built up since buying (or any other savings you've gathered).
Paying off the equity loan has strong benefits. You'll be able to enjoy 100% of any future uplift in the property's value, you won't need to pay any more interest on the loan, and you'll have a greater choice of deals next time you remortgage.
If you can't pay off the loan when remortgaging, perhaps due to a lack of growth in the value of the property or a change in personal circumstances, you'll have far fewer options, as only a handful of banks offer deals that allow equity loans to remain outstanding.
How do I find a Help to Buy property?
If you're thinking of buying a home using Help to Buy, your first port of call should be checking the website of your regional Help to Buy agent to find properties in your area. There are three agents, covering the North, Midlands and London and South of England.
The property portal Zoopla allows you to search for Help to Buy homes, as do specialist new-build portals What House? and Share to Buy. Rightmove allows you to search for new-build homes, but not specifically Help to Buy properties.
High-street estate agents sometimes include new-build homes in their listings, but you may have more joy searching for local developments online.
Help to Buy calculator
Find out whether a Help to Buy equity loan might be an affordable option for you.
Pros and cons of Help to Buy
- With the equity loan boosting your deposit, you may be able to get a mortgage more easily than if you were borrowing 95% from a mortgage lender.
- Taking out a mortgage on a smaller proportion of the property price could also mean you get a better rate.
- As the loan is for a percentage of the property value, rather than a set cash amount, if the property drops in value you will pay less back.
- The loan is interest-free for the first five years, so if you're able to pay it off before interest kicks in it's a cheap way to borrow.
- Help to Buy has faced criticism for inflating the prices of new homes. This means it may be harder to build up equity as your property may not grow significantly in value.
- As the loan is for a percentage of the property value, rather than a set cash amount, if the property grows in value you will pay more back.
- Getting a mortgage on a Help to Buy property can sometimes be challenging, and not all lenders cater for the scheme. This can be problematic when you come to remortgage a few years down the line.
- You can only use the loan to buy a new-build home, so it's not going to help if you wanted an older property.
- Once the interest kicks in it rises sharply, by increases in the Retail Prices Index (RPI) + 1% every year.
- If house prices drop before you've had a chance to pay off much of your mortgage, you could find yourself in negative equity, where you owe more on your mortgage (and equity loan) than your home is worth.
Alternatives to Help to Buy
Help to Buy has been very popular with first-time buyers, but it's not the best option for everyone.
Before rushing into using the scheme, it's important to weigh up the other options available, which include the following:
Low deposit mortgages
First-time buyers with a 5% or 10% deposit can consider getting a low-deposit mortgage rather than using Help to Buy.
Taking out a standard mortgage means you won't get assistance from the government, but it also means you won't be limited to buying a new-build home.
The government's First Homes scheme is likely to be the main successor to Help to Buy.
The scheme allows first-time buyers in England to get a 30% discount when buying a new-build home. Councils can set their own eligibility rules (eg limiting properties to local buyers or prioritising key workers).
The scheme has been piloted in several areas, and it's likely the number of available properties will ramp up as Help to Buy winds down.
Shared ownership can help you get on the property ladder in more expensive cities, such as London.
Schemes allow you to buy a share of a property (usually from 25%) from a housing association and pay rent on the remainder.
This allows you to get a foot in the door - but you'll need to do your sums, as the combined cost of your mortgage, rent and service charge can quickly add up.
Guarantor mortgages allow parents to help their child buy a home by using their property or savings as collateral.
Find out more in our full guide.
Help to Buy in Wales
Wales has its own version of Help to Buy. As in England, it allows borrowers to take out a 20% equity loan on a new-build home, with loans provided interest-free for the first five years. The scheme will also end on 31 March 2023.
The Welsh scheme has two key differences. Help to Buy Wales is available to both first-time buyers and existing homeowners, and there is only one price cap, which is set at £250,000. You can find out more in the Welsh government's guide.
Help to Buy in Scotland
Scotland's version of the Help to Buy scheme closed in 2021.
First-time buyers may instead be eligible for the Scottish government's Low-Cost Initiative for First-Time Buyers.
The scheme is split into two, depending on whether you're buying a home on the open market, or from a council or housing association. You can find out more on the Scottish government's website.
Forces Help to Buy
A special Help to Buy scheme is available to people in the Armed Forces. If you qualify, you can borrow up to 50% of your salary interest-free to use for a property deposit and other buying costs, such as legal fees.
The maximum loan you can get is £25,000, which needs to be repaid over 10 years.
To be eligible you must:
- have completed a minimum length of service
- have more than six months left to serve when you apply
- meet certain medical categories.
To apply, you will need to go through the Joint Personnel Administration system. Talk to your chain of command or personnel agency for more information.
Forces Help to Buy is currently scheduled to run until the end of 2022.