The Government created the ‘Help to Buy’ Scheme to give first time buyers a boost as they seek to get onto the housing market. So what are the rules and how does it work?

If you can’t quite afford the mortgage on 100% of a home, Help to Buy: Shared Ownership offers you the chance to buy a share of your home (between 25% and 75% of the home’s value) and pay rent on the remaining share. Later on, you could buy bigger shares when you can afford to.

You could buy a home through Help to Buy: Shared Ownership in England if:

  • your household earns £80,000 a year or less outside London, or your household earns £90,000 a year or less in London
  • you are a first-time buyer, you used to own a home but can’t afford to buy one now or are an existing shared owner looking to move.

With Help to Buy: Shared Ownership you can buy a newly built home or an existing one through resale programmes from housing associations. You’ll need to take out a mortgage to pay for your share of the home’s purchase price, or fund this through your savings. Shared Ownership properties are always leasehold.

Only military personnel will be given priority over other groups through government funded shared ownership schemes. However, councils with their own shared ownership home-building programmes may have some priority groups, based on local housing needs.

If you have a long-term disability and cannot find a suitable home for your needs, you can get help with the ‘Home Ownership for People with long-term Disabilities (HOLD)’ scheme. https://www.ownyourhome.gov.uk/scheme/hold/

With a Help to Buy: Equity Loan the Government lends you up to 20% of the cost of your newly built home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest.

You won’t be charged loan fees on the 20% loan for the first five years of owning your home.

  • You need at least 5% of the sale price of your new-build flat or house as a deposit.
  • The government lends you up to 20% of the sale price.
  • You borrow the rest (up to 75%) from a mortgage lender, on a repayment basis.

Example

Item Value
Cost of home £200,000
Your deposit 5% £10,000
Equity loan 20% £40,000
Mortgage 75% £150,000
TOTAL £200,000

You don’t pay any interest or fees on the government’s equity loan for the first five years. In the sixth year, you’ll be charged 1.75%. After then, the fee rises by inflation based on the Retail Prices Index (RPI) plus 1% each year. RPI figures are put together by the Office for National Statistics. See below for an example of how the fees work.

Interest rates for paying back your loan

Item Value
Years 1-5  no fees
Year 6: 1.75% of the loan
Year 7 onwards: 1.75% + RPI + 1%

These fees do not go towards paying off the government loan.

When you sell your home, or the mortgage is paid off, you have to repay the equity loan plus a share of any increase in the value. It works like this:

Example

  • Home bought for £200,000, sold for £250,000
  • Increase in value 25%
  • Equity loan repayment £50,000 (£40,000 + 25% profit)
  • Mortgage £150,000 (less capital repayments)
  • Your share at least £50,000

The remaining £50,000 (or more) can be used a deposit on your next home. The exact amount depends on how much you’ve paid off your mortgage. You can also pay back part or all of your loan at any time. The minimum percentage you can pay back is 10% of the market value of your home. The amount you pay will depend on the market value at the time.

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If you can’t find the information you are seeking or just want a fuller explanation please call us. We have a number of offices in and around London that may be convenient for you to contact but we will be able to help wherever you are based.

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