Everything Prospective Homeowners Need to Know about Help to Buy

Posted on July 26, 2016

Getting onto the property ladder is a notoriously difficult journey for many, with the need to save a hefty deposit and pass your prospective lender’s mortgage affordability tests more crucial than ever. As one of the leading estate agents in Sunderland, we make it our mission to advise new and existing clients on all aspects of the property purchase process, including providing access to the financial guidance they need to secure the home of their dreams. In this post, we take a closer look at Help to Buy, a government scheme that is making the market more accessible for first time buyers and those moving onto a bigger and better property.

About Help to Buy

Help to Buy was officially launched in April 2013 introducing the Equity Loan part of the scheme to those buying for the first time and individuals moving up the property ladder. Help to Buy Equity Loan scheme will be available until 2020, and provides a loan of up to 20% of the property value to accompany the 5% deposit you gather. Thanks to this combined 25% deposit you can access mortgages with more attractive rates thus making it more affordable for you in the long run.

Repaying your equity loan

Provided by the Homes and Communities Agency (HCA), this 20% contribution is repayable, and is interest free for the first five years and charged at 1.75% in year six. The rate then climbs by 1% annually plus any increase incurred due to inflation.

If you don’t repay the equity loan borrowed and wish to sell, this stake is simply reclaimed from the value of the home, which can be a concern if your home ends up in negative equity.

What’s the catch?

The Equity Loan scheme is only available on new build properties worth up to £600,000, and unlike other schemes delivered by the government to make home ownership more accessible, there is no maximum income requirement. The property however must be your permanent and only residence, which means it cannot be used to invest in a buy-to-let property.

Unfortunately, participation in Help to Buy doesn’t get you out of applying for a mortgage and undergoing scrutiny when it comes to your finances via your lender’s affordability tests so make sure that you can realistically cover your monthly mortgage repayments and have a good credit score.

The Mortgage Guarantee

The Mortgage Guarantee is the second part of Help to Buy, and again this was introduced to make it possible for those with smaller deposits to purchase a home of their own but this initiative does have a few differences. Introduced in October 2013, the Mortgage Guarantee is accessible to those wishing to buy a new build or existing home, however the purchase value limit is the same. Again buyers will need to raise a 5% deposit and this time the government will provide a guarantee of 15% of the property value to your mortgage lender to offer greater peace of mind and lower rates.

The Mortgage Guarantee is only available until the end of this year so hurry to take advantage of this Help to Buy option.

Need further advice on property buying or want additional information about a property you have seen in our portfolio? Contact our estate agents in Sunderland today.