A Beginner’s Guide to Help to Buy Mortgages (HTB)
Homeownership is becoming a distant dream for a growing section of the British population. According to government data, the average age of first-time homebuyers has increased across the country, with only 27% of Brits under-35 owning their home in comparison to 65% in the 1990s.
Are you a first-time homebuyer struggling to come up with the down payment? Don’t worry, the government can help you. The UK government launched the Help to Buy (HTB) mortgage scheme in April 2013 to help first-time homeowners, as well as existing homeowners, buy a property.
Even if you currently have or have had previous bad credit, the Help to Buy scheme is still available to you.
What is a Help to Buy (HTB) mortgage?
The Help to Buy scheme is a government-aided initiative to help first-time homebuyers and existing homeowners purchase a new property buy helping towards the deposit. There are two primary options under HTB program: equity loan and shared ownership.
We’ll focus on Help to Buy equity loan in this post.
Financial assistance under HTB mortgage
Here is how you receive financial aid under Help to Buy (HTB) equity loan.
- The government provides an equity loan of up to 20% of the price of the house (40% in London), subject to a maximum purchase price of £600,000.
- The borrower must contribute at least 5% of the price of the property, and the rest (75% or 55% in London) is borrowed from a mortgage lender. As per the rules, you must apply for a minimum mortgage of 25% to qualify under the program.
Repayment terms and interest rate of HTB mortgage
- The maximum repayment term for a Help to Buy equity loan is 25 years. You have to repay the exact percentage amount (20%) to the government upon the sale of the property.
- You can repay the loan anytime during these 25 years. However, you have to pay at least 10% of the market value of the house in an early repayment.
- There are no interest payments during the first 5 years of the government loan, but past that, you’ll pay 1.75% plus 1% as interest. The interest rate will rise in proportion with the inflation or Retail Price Index (RPI).
- There is a monthly management fee of £1 for the first 5 years.
How do you qualify for a Help to Buy mortgage?
The government has set some qualifications for Help to Buy mortgages.
- The property should be newly built with a maximum price of £600,000.
- As the borrower, you need to contribute at least 5% (of the property’s value) as a deposit.
- You must take a traditional mortgage (from a qualifying lender) of at least 25% of the house price.
- If you are purchasing a house in London, your contribution and mortgage must cover 60% (55% Mortgage/5% deposit) of the house price. If you’re buying a home outside London, the amount rises to 80% (75% mortgage/5% deposit) of the cost of the property.
- The maximum primary mortgage amount cannot exceed 4.5 times of your household income.
- The Help to Buy program is not available for buy-to-let purchases. It has to be your primary residence, and you cannot sublet it until the HTB loan is repaid.
How Help to Buy mortgages will change in 2021?
The Help to Buy mortgage scheme is set to undergo significant changes after March 2021.
Under the new rules (applicable between April 2021 and March 2023), only first-time homebuyers will be eligible for a HTB loan. Additionally, the government will introduce regional limits for the maximum house price instead of the current £600,000 country-wide limit.
If you’re a first-time homebuyer, all these details and technicalities could be overwhelming. Clever Mortgages are a team of experts that help first-time homebuyers go through the entire financing and home buying process. We have helped lots of clients through the HTB buying process with step-by-step assistance.
Remember, even if you currently have or have had previous bad credit, the Help to Buy scheme is still available to you.
If you’re ready to become a homeowner, give us a call today!