Help to buy
What is London Help to Buy? It is a government-backed scheme to help first-time property buyers (FTBs) buy new homes with just a 5% deposit required.
You can no longer apply for the Help To Buy: Equity Loan Scheme.
The scheme allows borrowing 20% of the purchase price (or 40% for London homes) interest-free for 5 years. The rest is taken as a typical mortgage.
The Help-to-Buy scheme is available until the end of March 2023.
Who is eligible for Help to Buy London?
The Help-to-Buy scheme is for first-time property buyers in the UK only. You must be at least 18 years old and have no records of owning a property in the UK or abroad.
Moreover, the property should be newly built, meaning you can’t buy a second home or a buy-to-let property via Help-to-Buy.
The maximum purchase value for a Help-to-Buy home depends on the region. For instance, the upper limit for a new home in London should not exceed £600k.
How the Help-to-Buy scheme works?
The process of buying with Help-to-Buy goes as follows:
- Deposit. You raise a 5% deposit for an eligible new home.
- Equity loan. The government lends you 20% (or 40% in London) of a new home value, interest-free for 5 years.
- Mortgage. You borrow the rest 75% (or 55% for Londoners) from a mortgage lender on a typical repayment basis.
- From year 6, you will need to pay 1.75% of the equity loan, which will increase depending on the Consumer Price Index plus 2% (or 1% for those who took an equity loan before December 2019).
- This equity loan must be repaid over 25 years or earlier (if you sell your property).
How to pay back the interest-free loan with Help-to-Buy?
Once the interest-free period ends, you will repay the equity loan like this:
- Year 6: 1.75% of the loan
- Year 7+: 1.75% + Consumer Price Index (CPI) + 2% (or 1%)
For instance, year 7 means repaying 1.82% of the loan, while year 8 means 1.90%.
You will also have to pay a £1 monthly management fee. When you take out the equity loan, you agree to repay it in full, with interest and management fees included.