Help To Buy Mortgages
Over the years there have been a number of government-led schemes introduced to assist people in purchasing a property. Whilst the Mortgage Guarantee scheme offered to assist those with smaller deposits was withdrawn in 2016, this doesn’t mean that purchasing a property with a 5% deposit is no longer an option.
Helpful Quick Guides
- What is a government-backed equity loan?
- How can I access help to buy?
- How do I apply for a help to buy mortgage?
- How much will a help to buy mortgage cost?
- What should I watch out for?
A Help to Buy equity loan is a loan from the government of up to 20 percent of the cost of a new-build property. Equity loans are open to first-time buyers and home movers, but the property must be a new-build.
To qualify for an equity loan, you will have to contribute at least 5 percent of the purchase price as a deposit. You will then receive a loan from the government of up to 20 percent of the purchase price, meaning you’ll need a 75 percent loan-to-value mortgage to cover the rest.
There is no interest charged on the government loan for the first five years of property ownership. In the sixth year, you’ll be charged interest of 1.75 percent of the loan’s value. After this period, the fee will increase every year by the Retail Prices Index (RPI) plus 1 percent.
The loan must be paid back within 25 years, or when the property is sold, whichever comes first. However, it’s worth bearing in mind that if you sell the property, you will have to pay back 20 percent of the sales price, which could be more than originally borrowed if the property’s value has increased.
At The Mortgage Centres, we’re scanning the market daily for new mortgage products and better deals. So, if you are looking for an option that enables you to make the most of your deposit and get started owning your own home, then we can help.
Applying for the Help to Buy scheme is easy. If you’re applying for the equity loan, you must buy your home from a registered Help to Buy builder, and although the majority of developers are included in the scheme, some are not. Contacting your local Help to Buy agent can help you find a Help to Buy registered builder in your area.
Once you have found an eligible property, you should then speak to a mortgage broker who can organise a mortgage ‘decision in principle’ from a participating lender on your behalf.
There are a number of Help to Buy lenders out there, so prices will differ. However, as a guide, interest charges tend to range from 3 to 4 percent. There are also likely to be a number of charges attached to each deal, so it’s essential you take these into account before making a decision based purely on the headline rate. If you are signing up for the equity loan part of the scheme, you should also budget for the loan repayments you’ll have to make after year five.
In common with any mortgage borrowing, the main risk is that of rising interest rates. In addition, borrowers who apply for a 95% mortgage will have minimal equity initially and will be exposed to a negative equity position in the event of property prices falling. In other words, your house may be worth less than the value of your mortgage when you need to sell it.