Getting on the property ladder for the first time is getting harder and harder but now there is a special type of mortgage that can help you buy the home you really want to live in.
The Help to Buy mortgage is specifically designed to help typically the first time buyers buy their first home on properties that are running the scheme.
Let’s look at how that:
Firstly there is 2 versions of Help to Buy, those properties in London or those outside London
5% deposit required: £10,000
20% Government equity loan: £40,000
The remainder is funded with a mortgage ie 75% £150,000
For those properties in London, the difference is the equity loan from the government can go up to 40%
5% deposit required: £20,000
40% Government equity loan: £160,000
The remainder is funded with a mortgage ie 55% £220,000
Paying back the equity loan
For the first 5 years:
- the equity loan is interest-free
- You pay a £1 monthly management fee by direct debit
From year 6
- You continue to pay the £1 monthly management fee
- You start to pay a monthly interest of 1.75% of the equity loan
- Your interest fee will rise each year in April by the regional price index (RPI) plus 1% until you repay your loan
You only need to repay the equity loan in full when you:
- Pay of your mortgage
- Sell your home
- Come to the end of your equity loan term
But you can choose to pay off your equity loan any time, in full or in 10% chunks before the end of the loan period.
The amount you borrow is a percentage of the value of your new home and the amount you pay back is the same percentage of the value of your home.
This means if the value of your home rises so does the amount you owe on your equity loan. It works both ways though, so if the value of your home falls the amount you owe on your loan falls too.
Example: Repaying a 20% equity loan where the home has increased in value.
- Purchased your home for £200,000
- Sell your home for £210,000
- Repay your 20% equity loan, £42,000
- Pay off your 75% mortgage, £150,000
Example: Repaying a 40% equity loan where the home has increased in value:
- Purchased your home for £400,000
- Sell your home for £420,000
- Repay your 40% equity loan, £168,000
- Pay off your 55% mortgage, £220,000