08 Nov Help To Buy – how it works
Help To Buy is a government initiative aimed at helping those who are struggling with getting a deposit together. There are certain criteria required to be eligible for a HTB mortgage.
- You will need to have saved at least 5% deposit
- The purchase price of the property must be below £600,000 (or £450,00 if you are using a HTB ISA [see below], or £300,000 in Wales)
- You must use it for your primary residential home
There are three Help To Buy options:
Help To Buy: Equity Loan
The Government lends you up to 20% of the cost of your newly built home, so you will only need a 5% cash deposit and a 75% mortgage to make up the rest. You will not be charged loan fees on the 20% loan for the first five years of owning your home. You will start paying interest on the HTB element of your loan in year six, and must have repaid the full amount by the end of your mortgage term or if you move house.
You must buy a New Build property from a developer who is registered with the HTB Scheme.
Help To Buy London
Differs from above only in that the government will loan 40% deposit so you will need 5% cash deposit and 55% mortgage, and your purchase must be in a London Borough.
Help To Buy ISA
If you are saving to buy your first home, save money into a Help to Buy: ISA and the Government will boost your savings by 25%. So, for every £200 you save, receive a government bonus of £50. The maximum government bonus you can receive is £3,000. You can save up to £200 a month into your Help to Buy: ISA but to kickstart your account, in your first month, you can deposit a lump sum of up to £1,200.
The minimum government bonus is £400, meaning that you need to have saved at least £1,600 into your Help to Buy: ISA before you can claim your bonus. The maximum government bonus you can receive is £3,000 – to receive that, you need to have saved £12,000.
When you are close to buying your first home, you will need to instruct your solicitor or conveyancer to apply for your government bonus. Once they receive the government bonus, it will be added to the money you are putting towards your first home. The bonus must be included with the funds consolidated at the completion of the property transaction. The bonus cannot be used for the deposit due at the exchange of contracts, to pay for solicitor’s, estate agent’s fees or any other indirect costs associated with buying a home.
A HTB ISA can be used to purchase a property up to £250,000 (£450,000 in London).
Most banks/Building Societies will be able to advise you on opening a Help To Buy ISA.