These days it might seem like there are lots of barriers to getting on the property ladder. We’ve heard tales of how cheap our parents bought houses for and, counting for inflation, feel a little like we’ve drawn the short straw.
The good news is that it’s not impossible to step onto the property ladder, even if you don’t have a huge deposit ready to go. There are government schemes that can help you, and Help to Buy in particular is a great one for first-time buyers looking to buy a new-build house.
The Help to Buy Equity Loan is a government-backed scheme that helped 21,026 first-time buyers to buy properties in the last 3 months of 2020 alone. In this article we’re going to explore everything you need to know about it:
What is Help to Buy?
As part of the scheme, the government lends you between 5 and 20% (or 40% for properties in London) of the market value of your home to-be. The home must be a new-build house that has been newly-constructed and not lived in yet.
The maximum property price you can borrow depends on the region – for example, in the South East, you can use the scheme to buy a house up to the price of £437,600.
Here’s an example of how it might work. For a £320,000 house, you provide a deposit of 5%, totalling £16,000. The government lends you an equity loan of £64,000 (20%). The other £240,000 (75%) comes from a standard repayment mortgage from a lender.
The equity loan is interest-free for the first five years after you buy the property. In those first five years, you just pay a monthly management fee of £1 a month. From year six and on you continue to pay that monthly fee, plus 1.75% interest (this is the interest cost at the time of writing – it increases each April).
You can start repaying this equity loan after you’ve owned the property for a year, but any one repayment has to be more than 10% of the property value at the time (as assessed by the Royal Institution of Chartered Surveyors).
How it Works: How to Apply
To be eligible for the Help to Buy Equity Loan you must:
- Be a first-time buyer
- Be buying a new-build property
- Not have had any form of mortgage before.
Keep in mind that if you are married, in a civil partnership, or living with a partner as though you were married, you will have to apply together. You’ll also have to sign a legal declaration that states you are definitely a first-time buyer, and of course must be able to prove you’ll be able to make repayments.
Here are the steps you need to take to apply and secure your home:
1. Find and reserve your home to-be
Once you’ve found your dream first home, you should get in touch with the home builder to reserve it, with a reservation fee of £500. The fee is refundable if you aren’t successful in your application for the equity loan.
It’s a good idea at this stage to receive financial advice from a Help to Buy agent if there’s anything you aren’t sure about. The agent will be able to tell you if you’re eligible and that you can cope with the repayments and outgoings.
2. Apply for the equity loan
If you are eligible and can make the repayments, your Help to Buy agent will help you kick off the process of applying for the equity loan. You’ll need to accurately and honestly fill in a Property Information Form with some personal and financial details, as well as information about the property itself.
3. Get Authority to Proceed
Should all go to plan, you’ll get Authority to Proceed from your Help to Buy agent. This means you are eligible and will get further advice from a conveyancer on more forms to fill out.
4. Apply for your repayment mortgage
This is your responsibility to do when (and only when) you have Authority to Proceed.
5. Exchange contracts
At this point, your conveyancer will report to you the necessary legal information, explain your responsibilities, and have you sign the sale and loan contracts.
Your Help to Buy agent will look over the paperwork so you are ready to exchange contracts.
You can then pay at least 5% of your deposit, and once you’ve exchanged contracts, you’ll be able to arrange a home visit with the homebuilder.
6. You own the property!
You’ll then pay the rest of your deposit, your lender will pay the homebuilder the repayment mortgage amount, and the government will pay them the equity loan amount.
Now, you’ll legally own the property and can begin the fun part: moving in!
What is the term of the equity loan?
Equity loans on the Help to Buy scheme usually have a term of 25 years.
Can I make structural changes to my Help to Buy home?
You cannot make structural changes unless they are for medical reasons and the government has given permission.
Can I rent out a Help to Buy home?
You cannot sublet your home without permission.
What standards do Help to Buy new builds have to meet?
The government sets out high standards that properties should meet to be eligible. For example, properties must meet the standards of the Consumer Code for Home Builders and the New Homes Ombudsman (enforcing high building standards and compensating for poor building work).
Home builders under the Home Builders Federation (HBF) Star Rating scheme must display their star rating.
As well as this, home builders should maintain up-to-date planning permission and building regulations, and should supply a new-home warranty.
Where can I find even more information?
Take a look at the government’s guide on the Help to Buy Equity Loan.
Buying Your Dream First Home with Woodgate
We believe the Help to Buy scheme is a brilliant way to get your foot in the door and have seen it assist many people in buying their ideal home when it would have otherwise been impossible.
Here at Woodgate, we build new homes with community at the core. With a Woodgate property, you don’t just get a beautiful home, you get access to a welcoming community and a host of amenities.
We may be biased but there really is no better place to buy your first home with the Help to Buy scheme. With a community focus and brand new £4 million Woodgate Primary School that has just opened this September 2021, this is a unique and exciting place to start your adventure.