Correct at 31/03/2020
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If you’re struggling to save up a deposit to buy a property, a Help to Buy mortgage could be worth considering.
The Help to Buy equity loan is a Government scheme designed to give buyers a leg up onto the property ladder. It’s available for new build properties costing up to £600,000.
You only need to put down a 5% deposit and the Government will lend you a further 20% of the property price interest-free for the first five years (40% if you’re buying in London). That means you’ll only need a mortgage for 75% of the property price (55% if you’re buying in the capital) helping you keep your mortgage costs to a minimum. You’ll pay it back in the same way as a standard mortgage, with your monthly payments going towards repaying the capital you’ve borrowed and the interest you owe.
If you think Help to Buy could be a good option you need to act fast, as the current scheme is coming to an end in March 2021. Speak to one of our experts and we can help you understand whether you’ll meet this deadline and qualify for the Help to Buy scheme.
A new scheme will then be introduced for two years from 1st April 2021, allowing first time buyers (only) to purchase a property up to the value of a new regional price cap. Learn more about Help to Buy in our guide.
Under the Help to Buy scheme, you put down a 5% deposit. The Government will lend you up to an additional 20% of the property price interest-free for the first five years. You’ll need a mortgage for the remaining value of the property and you’ll pay it back in the same way as a standard mortgage, with your monthly payments going towards repaying the capital you’ve borrowed and the interest you owe.
Several lenders offer Help to Buy mortgages, and as with other mortgages, the interest rate will depend on the type of deal you choose. Once you’ve reserved the property you want to buy, you can apply for your equity loan through your Help to Buy Agent. You can then add this to your deposit and apply for a mortgage for the remaining amount you need.
As you’re borrowing less than you’d normally need to with a Help to Buy mortgage (if you had to rely on your own deposit alone), you’ll have access to cheaper mortgage rates than if you were taking out a 95% mortgage. However, you’ll need to factor in the costs of the Government loan, which is only interest-free for the first five years.
If you’ve had problems managing debt in the past, some lenders may not be willing to accept your application. If your score isn’t perfect but you can show you’re in control of your debts, it may be possible to get a Help to Buy mortgage. It’s worth looking at how you could improve your credit score before you apply. Find out more in our guide: ‘What credit score is needed to buy a house?’
The current Help to Buy equity loan scheme will end in March 2021 and will be replaced by a new scheme that has regional price caps and will only be available for first time buyers.
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