Help to Buy Explained. An introductionHi, my name is Dan, I am a CeMAP qualified mortgage & protection adviser. This video is purely for educational purposes only, and should not be seen as advice or a recommendation to act and I must stress your home may be repossessed if you do not keep up with the repayments on the mortgage.
So this is a topic a lot of people are talking about. When does the old scheme start, when does the new one kick in, along with other questions. So I thought I’d cover off a couple of basic questions to help you out.
Should I buy through Help to Buy?If you have a smaller deposit than a lender may require, for the value of the property that you are hoping to buy, the Help to Buy scheme can offer great ways onto the property ladder. But there can be confusion.
So what is the Help to Buy Scheme?The Help to Buy scheme is backed by the government and allows you to buy a new-build home with the help of an equity loan, also known as shared equity. The government provides a loan of up to 20% of the home or 40% in Greater London, so you only need to raise a 5% deposit, which means a 75% mortgage or 55% in Greater London.
How do you qualify for Help to Buy?Currently, at the time of recording the Help to Buy scheme is available to first-time buyers, those who have previously sold a home, or those who will have sold their current property before or at the point of completion on their Help to Buy home. But you need to apply before 15th December 2020 and complete the purchase of your property before 31st March 2021.
From the 16th December 2020, the Help to Buy Scheme is available to First Time Buyers only. You can apply for this from the 16th December 2020 but it doesn’t start until April 2021.
Buyers must be at least 18 years old and unable to buy on the open market.
So what properties can you buy through the Help to Buy Scheme?The Help to Buy equity loan is only available on specific new build homes, and there are price caps on the new homes, depending on the region you’re purchasing in depends on the maximum property value you can buy through the scheme.
What Deposits do you need for Help to Buy?For a Help to Buy home, the deposit will be at least 5% of the full value of the home – for example, a 5% deposit of a home costing £500,000 would be £25,000. However, as the equity loan counts towards your deposit, you may be able to take out a mortgage where you might otherwise struggle; such as a 95% mortgage.
Repayments on Help to Buy homes
The current Help to Buy equity loan is interest-free for five years – during this time, you only need to pay your mortgage. After the first five years are over, you will pay an annual fee of 1.75% on the amount of the outstanding loan; this fee will increase each year inline with the Retail Price Index. As an example, if you had an equity loan of £100,000 at an interest rate of 1.75%, you would pay interest of £1,750 per year, or approximately £145 per month, in addition to your mortgage payment. As this rate, and in turn the monthly cost, will increase annually, it is important that you budget for this additional cost to ensure the equity loan is affordable after 5 years.
On the new scheme that starts in April 2021, there is a slight change to the interest payment after the 5 years. Like the existing scheme, you won’t be charged interest on the equity loan for the first 5 years.
Interest fees start at 1.75% and rise each year in April by the Consumer Prices Index (CPI) plus 2% and you will pay a monthly management fee of £1 for the life of the equity loan.
The equity loan is secured against your property in the same way as a mortgage. You must repay the equity loan when you sell the home, pay off your mortgage, or reach the end of your equity loan term. But, you can repay all or part of the equity loan any time before then.
Get in touch with me or any other qualified mortgage adviser so we can help you decide if Help to Buy: Equity Loan is right for you.
Do you need to pay Stamp Duty on Help to Buy homes?With Help to Buy you may need to pay Stamp Duty Land Tax when you purchase. However, if you’re a first-time buyer, you will pay no Stamp Duty on properties worth up to £500,000.
Stamp Duty rates constantly change so make sure you check with a solicitor on the current rates before budgeting for your purchase.
Selling a Help to Buy homeWith Help to Buy you’ll need to pay back the equity loan when you sell your home or at the end of your mortgage period – whichever comes first. If you haven’t repaid the loan by the time you come to sell the property, the government will reclaim its percentage stake in your home at its current value. So, if you buy using the 20% Help to Buy equity loan, you will pay back 20% of the sale price of your home to the government when you sell.
One of the most important things you could do to prepare when applying for a mortgage is to check your credit score and history.
If you haven’t already seen my videos on how to improve your credit score and how to check your credit score and history for free, then I have put up a couple of links to these videos and I will also put them in the description.
These videos are quite informative if I don’t mind saying so myself because they equip you with the basics of what you need to know, so you do not waste your time and more importantly, end up being disappointed when you can’t buy your dream home.
Your home may be repossessed if you do not keep up repayments on your repayment mortgage, equity loan, or other loans secured against it. If you find this information helpful, subscribe and then you’ll know when I have provided new content. See you next week