Getting government help to buy your home

5% deposit mortgages: Help to Buy and Shared Ownership schemes

The Government has seen fit to extend its “Affordable Home Ownership” schemes until 2023. But the choice of product, Help to Buy: Equity Loan and Shared Ownershhip only, is diluted compared to the pre-existing offering (2013-2021, now closed). It’s also more locale-focussed, this time around.

That said, there are options for almost all buyers finding themselves unable to afford a home via the usual route. But there are strict criteria all buyers must meet, whatever their circumstances.

On that note, this is a first for us. We’ve made this guide for everyone, no matter what their employment status, not just the independent contractors we usually cater for.

So, first-time buyers can access both the Help-to-Buy: Equity Loan and Shared Ownership schemes.

For existing and previous homeowners, the choice is Shared Ownership only.

The Help-to-Buy ISA is now closed for new clients, but runs until November 2029 for those already on that ladder.

And those are the only ‘Affordable Homes’ programmes now running. Help-to-Buy: Mortgage Guarantee has been withdrawn entirely. I did say the list was diluted.

Here’s what it all means for anyone in England looking for a hand up onto the property ladder from the Government. Links to Scottish, Welsh and Northern Irish schemes are in the respective sections of this page, below.

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Help to Buy, Equity Loan

Help to Buy: Equity Loan is the only live Government ‘Help to Buy’ scheme on the market today. And then, you only qualify if you’re a first-time buyer.

But never having owned a home before is just one criterion those new to homeownership must meet. As well as being a first-time buyer to qualify, you:

  • must be aged 18 or over;
  • must have the capacity to repay the mortgage, interest and afford the fees;
  • can’t have owned either a home or residential land before, either in or outside of the UK;
  • can’t have had a sharia mortgage at any time.

If more than one of you is applying for Equity Loan, all applicants must meet those criteria.

In addition, you must make a joint application if you and your partner are:

  • married;
  • in a civil partnership;
  • cohabiting, and you realistically intend to live together for the foreseeable future.

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What you can buy with Help to Buy: Equity Loan

The property you want to buy must also meet strict criteria to qualify for Equity Loan; it must:

  • be a new build in which no one has lived before you;
  • be bought from a registered Help to Buy homebuilder (details from your local agent/Google);
  • be the only residential property you (both) own and live in.

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Localisation (England): maximum price caps:

Where you live in England dictates the maximum house price that qualifies, too. The table below lists these values, plus a Homes England Agent number (linked to website) and phone number:

Localised price caps (England) 2021-2023
Region Maximum property
purchase price
Agent Number
North East £186,100 1 0300 790 0570
North West £224,400 1 0300 790 0570
Yorkshire &
the Humber
£228,100 1 0300 790 0570
East Midlands £261,900 2 0333 321 4044
West Midlands £255,600 2 0333 321 4044
East of England £407,400 2 0333 321 4044
London £600,000 2 0333 321 4044
South East £437,600 3 0800 456 1188
South West £349,000 3 0800 456 1188

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Help to Buy finance: how it works (breakdown)

There are three financial components that make up the Help to Buy: Equity Loan mortgage equation:

  • Your deposit (minimum 5%);
  • Equity loan (loan 1, max 20% [London 40%]);
  • Repayment (Capital & Interest) Mortgage (loan 2, max 75% [London 55%]).

I’ll assume a 5% deposit set aside for the example. Why? Because people with 10% (or more) set aside may get a better deal outside the Help to Buy framework.

For now, let’s imagine you buy a home for £200,000, have 5% deposit and take out the full 20% Equity Loan. The breakdown would look like this:

Example: Help-to-Buy: Equity Loan finance breakdown
Property
Purchase Price
Your Deposit
5%
Equity Loan
20%
Your Mortgage
75%
£200,000 £10,000 £40,000 £150,000

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help to buy finance breakdownYour 5% deposit must be ready for the completion date in savings/transferable cash. Your agent will arrange the 20% Equity Loan part for you.

The balance of 75% (‘Your Mortgage’) you’ll need to arrange with a lender that’s registered for Help to Buy: Equity Loan. Your local agent will tell you which lenders operate in their/your catchment zone. However, you are free to find your own mortgage provider for that last 75%.

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Be prepared for higher interest rates on the 75% mortgage balance

You may find that Help to Buy mortgage interest rates are higher than other deals. The main reason is that you’re only putting down a 5% deposit. Plus, you’re taking on extra credit with the Government Equity Loan.

These combine to increase the lender’s ‘risk’ exposure. If you fell behind with payments and the housing market took a sharp downturn, your home may fall into negative equity. When the lender took possession of your home, their books would show a loss.

Given the fallout from the 2007 financial crisis, banks have learned their lesson. Following the subsequent Responsible Lending Guidelines, lenders now protect themselves from such exposure. One way they do this is by increasing interest rates up front.

To ensure that you’re not paying too much interest on the 75% mortgage balance, take independent advice.

Find out which lenders are part of your local scheme from your agent. Then talk to an independent financial advisor or specialist mortgage broker (like us). They can then help you find the best Help to Buy mortgage for your specific needs.

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Repaying your Equity Loan: when interest and fees become due for payment

You will pay interest to your mortgage lender from the day ‘Your Mortgage’ (75%) starts. That’s the easy bit.

Repaying the Equity Loan is more complicated. The dedicated gov.uk page is a ladder of jargon, broken links and legalese, so, I’ll try to explain in plain English. Sit tight; here we go:

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Paying off the Equity Loan: why you should repay before Year 6 (when interest becomes due)

For the first five years of your Equity Loan, you will incur no interest (20% in the example). Neither do you need to make any repayments towards paying it off.

However, we strongly advise you set aside monthly amounts ready to repay the Equity Loan before the sixth year. That’s when interest payments become due, and they’re not cheap.

Whatever figure your initial Equity Loan amounts to, divide it by 60 (12 months × 5 years). This gives you the monthly cost of your Equity Loan.

Set up a savings vehicle – an ISA, savings or joint account, or piggy bank under the bed. However you choose to save to pay off the loan is fine. Just make sure you’re ready on (or before) your mortgage completes!

But it’s not just to avoid paying interest on the Equity Loan that we advise this.

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RICS and mortar: when is 20% not 20%?

The Equity Loan isn’t a fixed fee when it comes to repayment. It is 20% of the value of your home at the time you look to make a payment. You will need to get a RICS valuation through a RICS-accredited surveyor to get that figure.

That done, and assuming your home’s value has increased, you’ll repay more than you borrowed. This repayable amount is only likely to increase the longer you leave it.

In our example, the property price is £200,000. Thus, the 20% Equity Loan segment of that totals £40,000.

Now, imagine that your home’s value increases by 4% every year over the five years that the Equity Loan is interest-free. That’s not too unlikely a scenario, is it?

That means your house will be worth roughly £243,330 after five years. 20% of that resale figure isn’t the £40,000 you borrowed. No, it’s £48,666!

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What you give is what you get? If only!

So, yes, it’s great that your home is now worth more. But, you could easily find yourself in a jam. That’s because your house price rise also means you have to pay more back to Homes England/the Government.

You can either pay back in part (a minimum of 10% of the home’s current worth), or in full. If you pay in two lots of 10%, each 10% payment will reflect the home’s market value at that time, not your original Equity Loan amount.

Whichever route you choose, you have to go through a rigorous process. Why the Government has made the procedure so difficult is anyone’s guess. But the saving, if you can afford it, is worthwhile.

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So, why don’t I wait until the end of the mortgage term to pay off the Equity Loan?

So, I hear you say,
“Why don’t I just pay off the monthly interest and save to pay off the Equity Loan when I pay off the mortgage or sell the home?”

Simple answer: the lifetime cost of your loan.

If you’ve not repaid all your Equity Loan by the end of the fifth year, it (or any balance) becomes subject to interest. And, for the first year, it’s not too bad: 1.75%.

In our example, that means the first (sixth) year, you’ll pay:

Example figures, Year 6 (first year interest becomes due)
Property Price
(£)
Equity Loan
(%)
Equity Loan
(£)
Annual Interest @1.75%
(of Equity Loan)
Monthly £ payment
(interest only)
£200,000 20% £40,000 £700 £58.33

However, on current trends, the rate payable from Year 7 will increase from 1.75% dramatically.

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Year 7 interest rates: a theoretical example

This is what many have referred to as the “Help to Buy mortgage trap”. It’s also one reason for publishing this guide. Help to Buy is not as straightforward as standard mortgages.

Buyers have to be aware of what they’ve signed up to. And, as previously mentioned, the Government’s site isn’t all that clear. After Year 6, the site states:

“The interest rate increases every year in April, by adding the Consumer Price Index (CPI) plus 2%.

“Your interest payments will decrease if you make a part repayment of the equity loan. This is because the amount the interest rate is applied to will reduce.”

As you can see, it backs up what we say about saving to pay off the Equity Loan early. But, here’s what that otherwise translates to, based on inflation (CPI) at time of writing.

The latest CPI (August 2021) stands at 3.2%. So, if you were beginning year 7 now, your interest rate of 1.75% would increase by 5.2% (3.2% CPI + 2%) to 1.841%.

On its own, an increase of 0.091% doesn’t sound so bad. But what if you compound those increments over the 20-year life of the mortgage balance? You could have saved thousands you needn’t have paid had you only repaid (some of) the Equity Loan earlier.

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Other fees

Another reason to repay the Equity Loan early is that it comes with a £1 fee every month until you repay it. There is also a £200 Administration fee (at time of writing) should you wish to change your Equity Loan, including paying it (or part of it) off.

You’ll also incur fees if you fall behind with your repayments, including recovery fees. Should you sell your home, you’ll also incur fees, depending upon what the value of the home is at that time.

And you should also budget for the £500 you need to reserve your home (see below). And don’t forget the fees you’ll have to find for a conveyancer/solicitor, lender and associated reports and searches.

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The 4-Stage Help to Buy: Equity Loan Process

Help to Buy: Equity Loan is a 4-stage process, a brief overview of which is here:

  • Stage 1: Application
    • Find an eligible new build/housing developer;
    • Reserve the home (you may pay a reservation fee of up to £500, but no more!);
    • Take financial advice from an advisor or broker;
    • Apply for your Equity Loan, which will include filling out a “Personal Information Form”;
  • Stage 2: Authority to Proceed
    • Get your Authority to Proceed notification from your agent;
    • Complete any forms provided to you by your conveyancer;
    • Apply for your mortgage with your chosen lender;
  • Stage 3: Exchange Contracts
    • Meet with your conveyancer to go over legal requirements and sign paperwork;
    • Your agent will issue your conveyancer with an “Authority to Exchange” upon receipt/appraisal of the conveyancer’s paperwork;
    • You have a minimum of 5% deposit ready to pay on or before the Completion Date (your conveyancer will confirm that date);
    • Once exchanged, you can then visit your new build home;
  • Stage 4: Completion
    • If you’re paying more than 5% deposit, have the funds ready to go upon completion;
    • Your mortgage lender will then pay the homebuilder the rest of ‘Your Mortgage’;
    • Homes England (via the agent) will pay the Equity Loan to the homebuilder.

That’s it! You now own your home.

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Things to remember

Buying a home can be stressful and confusing. Take financial advice from an IFA or longstanding mortgage broker. They will talk over your income, legal obligations and best mortgage options in plain English.

It’s important that you don’t proceed with ‘Your Mortgage’ until you have “Authority to Proceed” from your Equity Loan agent.

Make sure with your conveyancer and agent that the Completion Date falls within the parameters of your mortgage offer (normally 3 months).

Just like a mortgage, the Equity Loan is secured against the mortgaged property. If you do not keep up the repayments, you will be in danger of losing your home.

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UK Variations by Country, Useful Links and Local Agent Details (England only)

There are separate Help to Buy guidelines for England, Scotland, Wales and Northern Ireland. Likewise, there are different registered housing developers in each country.

In England, the Help to Buy scheme is administered by Homes England. And (typically), you have to go through a specific agent, depending on where you live.

To date, none of the English agents have a list of registered developers on their websites.

Furthermore, just because they’re the Help-to-Buy agent doesn’t mean that they’re also the Shared Ownership agent. But they might be.

Confused, much? Don’t panic; you’re nearly there.

Given the localised variations, it’s worth calling your local agent to begin your journey. So, on behalf of Homes England, the details for the regional English agents are as follows:

Here’s more information about HM Govt phone numbers and call charges.

For Scotland and Wales, it’s much simpler. Each regional government has produced a developers’ list, accessible here:

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Further reading

Should you need assistance after you’ve bought your home, here are some useful links:

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Shared Ownership

The other current ‘Affordable Home Ownership Scheme’ is ‘Shared Ownership’, solely for the use of buying leasehold properties. This is where you part buy/part rent your home, and shouldn’t be confused with joint or dual home ownership.

Again, the details for England I’ll talk about below; for other UK countries, visit:

In most cases, you can buy between 25% and 75% of the home, but some landlords will offer just a 10% share. In all cases, the minimum deposit is 5% of the share value you’re buying.

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Local Shared Ownership agents (England)

And, like Equity Loan, to apply and access the scheme you’ll have to register with your localised agent:

From 2022, there will be a new-look Shared Ownership scheme. The government is yet to confirm launch dates, but here’s an overview of what’s to come: 2022 Shared Ownership (England).

For now, there are other strict criteria that prospective homeowners need to meet. But, thankfully, they’re a lot more straightforward than Help to Buy: Equity Loan.

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About you: qualifying for Shared Ownership

As the overarching scheme suggests, Shared Ownership is for people who are struggling to get a mortgage by the usual route. It’s no surprise, then, that the first two criteria prospective buyers must meet are:

  • Your combined household income is £80k or less per annum, or £90k in London;
  • The deposit and mortgage repayments for a home that meets your needs is beyond your reach.

If you satisfy both of those criteria, then one of the following must also be true; you are:

  • A first-time buyer;
  • A previous homeowner, but can no longer afford one;
  • A current homeowner whose needs have changed, but you can’t afford a suitable home;
  • Looking to bond a new domestic arrangement (e.g. following the breakdown of a relationship);
  • Already in a shared ownership arrangement and want to move home.

Even if you meet all those criteria, not all homes are available in specific regions. Some exist in a ‘designated protected area’, which come with their own criteria, namely:

  • You can only buy if you have a connection to the area;
  • You can only own a share of (up to) 80% of the property;
  • You can’t sell the home on the open market, only back to the landlord or a designated buyer they nominate.

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Special dispensations for elderly and disabled people

If you’re over 55 or have a long-term disability, there are other Shared Ownership schemes for you. Like Equity Loan, you will need to go through an agent to access them.

For the elderly, there is a scheme called OPSO (Older People’s Shared Ownership). This enables you to buy up to 75% share of your home. Once you reach that maximum share, you’ll not have to pay rent on the balance. You can find more information on the OPSO website.

For disabled people, there is HOLD (home ownership for people with a long-term disability). This is useful if homes under the main Shared Ownership scheme don’t satisfy your needs. This could be because you need a ground floor property or a home with special access. You can find more information on the HOLD webpage.

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Moving from homeownership to Shared Ownership

If you currently own your own home and need to move to Shared Ownership, there are conditions you must meet beforehand. You must first sell your current home. And, to ensure that the processes gel, it’s advisable to use a conveyancer/solicitor.

To move from homeownership to Shared Ownership, you must:

  • Have accepted an offer on your existing property (i.e. ‘Sold: Subject to Contract’);
  • Present documentation confirming the sale (a ‘Memorandum of Sale’), confirming both the price you’ve accepted and your intention to sell;
  • Ensure that the sale of your existing home completes on or before the day your Shared Ownership commences.

See the contact information above to begin a Shared Ownership conversation with your local agent.

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Help-to-Buy ISA

A quick note on Help-to-Buy ISAs. The scheme is now closed to all new applicants.

However, for those with an existing Help-to-Buy ISA, here’s a recap of the saving/bonus mechanism:

  • Help-to-Buy ISAs are for sole use with the Equity Loan scheme;
  • The Government has pledged to top up your ISA savings by 25%;
  • The maximum top up is £3,000 (so save a maximum of £12,000);
  • The top up is a bonus, not a loan, so doesn’t have to be repaid;
  • You can pay in a maximum of £200 every month;
  • Joint applicants can have a Help-to-Buy ISA each, both paying in up to £200/pcm;
  • the Government will top up your ISA when you buy your home;
  • Joint applicants will both get the 25% Government bonus;
  • Your conveyancer/solicitor will send your application for the 25% Government bonus;
  • November 2029 is the cut-off date for contributions to your ISA;
  • You have until November 2030 to claim the Government bonus.

In addition, the scheme covers the cost of houses up to £250,000 outside London, or £450,000 inside the Capital. The property you buy must also be where you intend to live and must be the only home you own.

You can find out more on the Government’s Help to Buy ISA page.

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The 75% Help to Buy mortgage bit

With Help to Buy: Equity Loan, as mentioned, local agents will handle the equity loan part. For help with the balance of the mortgage, talk to us.

We specialise in niche lending, day in, day out. Our expert advisors can help you deal with the right registered Help to Buy lender for your situation. No obligation.

In the meantime, good luck with your search for an affordable housing solution! It’s not plain sailing, but we can stir up the breeze behind you.

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