Is the help to buy scheme right for you?
Hayward Moon, East Anglian Specialist Conveyancers, share their knowledge on the help to buy scheme!
What is the help to buy scheme?
We all know that for first time buyers, taking that first step onto the property ladder can be difficult! That’s why the government set up the Help to Buy scheme. This scheme is giving first-time buyers the opportunity to purchase a home with only a 5% deposit.
How does it work?
- The scheme works by you saving 5% of the sale price of a new built home as a deposit, the government will offer an equity loan of 20%, the rest you receive from a mortgage lender on a repayment plan.
- You will not be charged any interest rates on the government equity loan for the first five years, after that you will be charged 1.75%.
- At any point, you can pay back part or all of your loan — the minimum amount you can pay back is 10% of the market value of your home.
- This scheme won’t work if you’re looking to purchase your second home or if you plan to rent out the property.
- There is also a set limit for the price of the house, for example in England, both schemes apply to homes costing up to £600,000.
What happens when I want to sell?
When it’s time to sell your property, you will need to pay back the equity loan plus a share of any increase in the value of the property. For example, if you bought a home for £200,000 and sold for £250,000 the increase in value would be 25%.
You would pay back your equity loan of £50,000 (£40,000 + 25 % profit). Your mortgage would be £150,000.
This leaves you with a share of at least £50,000. Although do keep in mind that the exact amounts can change depending on the amount of mortgage you’ve paid off.
Pros and Cons
- It’s a great way to get your foot on the property ladder if you can’t quite afford the deposit —you only need to save 5% which is a more manageable deposit for people.
- Because you’re borrowing less overall, you’re more likely to qualify for a mortgage with a competitive rate of interest.
- You can borrow interest-free for five years — this is a great benefit of the scheme, as it gives you time to get financially settled before you start paying the interest on top.
- You are limited to only new build homes.
- After the first 5 years, you have to start paying interest.
- Your loan is not a fixed amount, it can fluctuate depending on the market value of your property — you could end up paying more of your loan than you originally borrowed.
When it comes to moving home, we’d love to help you with the legal side of things. With offices based in Ipswich, Colchester, Bury St Edmunds, Cambridge and Diss, we’re well situated to help you get a move on. Get in touch here.