The Basics:
- For both first time buyers and home movers looking to purchase a newly built property which is worth at a maximum £600,000
- The government will lend up to 20% (40% if buying in London) of the cost of the new home and the purchasers must put in a minimum 5% deposit
- Purchasers will therefore have to find the rest of the mortgage themselves, meaning a house worth £600,000 will only need a £450,000 mortgage rather than £570,000 mortgage
- The government loan will charge a £1 monthly management fee and will not charge interest for the first five years
- In year six you will have to start paying 75% of the original loan’s value with inflation added on top – these repayments do not go towards paying off the capital supplied by the government
- The loan can be paid off in lump sums at any time or will be taken off the value of any future sale of the purchased property or will the purchasers will be required to pay back the sum in full after 25 years
Eligibility:
- Must be a first time buyer or home mover, you will not be able to sublet this home or enter a part exchange deal on your old home
- The property must be a new build from participating builders and have a maximum value of £600,000
- A minimum 5% deposit is required and you must be eligible for a standard mortgage from a participating Help-to-Buy lender
- This home must be your only residence; you cannot own or part-own any other residential property
- This particular scheme is only available in England. The Scottish, Welsh and Northern Ireland governments run similar schemes
Pros
- This scheme offers potentially thousands of pounds’ worth of money to be used for a deposit and help secure mortgages for buyers looking to up size significantly which previously otherwise would not have been possible
- For the first five years this scheme is a very cheap way of securing cash for a house purchase
- Many companies currently in the construction of new builds will offer purchasers to get involved before the final completion of the build, this is an excellent opportunity for purchasers to have a say in the design and style of their new home
Cons
- This scheme must be used in conjunction with participating Help-to-Buy builders and lenders
- Holding the equity loan for more than five years can become an expensive option
- The equity loan must be paid back in full at some point either when a sell takes place or in 25 years after purchase
- As an equity loan the government technically owns whatever % of the house which they pay towards, therefore when the time to pay back the capital comes the government will take back their original input and an additional amount depending on how much the property rises in value – e.g. if there is a 10% increase in the property value the government will take back their initial loan value plus 2% extra (if you used the whole 20% available)
- The interest payments after five years do not go toward paying off the government loan but are additional payments which increase in cost over time due to inflation
Conclusion: For those desperate to move in to a new build house but lack the funds this is the perfect scheme to enable this. However, it could end up costing purchasers a quite hefty amount in the long run and therefore it may not be suitable for those who know in five years’ time they will not be able to afford the loan fees charged. Additionally, buyers must be aware that this loan must be paid back at some point with the addition of some part of the increase in value of the property.
