Help to Buy scheme – everything you need to know

Help to Buy is a government scheme to help first-time buyers get a property with just a 5% deposit. You can borrow 20% of the purchase price (40% in London), interest-free for five years. You can apply to the scheme until 31 March 2023. 

How does Help to Buy work?

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The Help to Buy scheme offers an equity loan where the government lends first-time buyers in England money to buy a newly built home.

This must be used to buy your main residence, and can’t be used to buy a second home or a buy-to-let property.

You need a deposit of at least 5% of the purchase price.

You can borrow 20% (40% in London) of the purchase price. This amount is interest-free for five years.

The maximum purchase price for a Help to Buy property depends on what region of England you live in.

You can’t use Help to Buy to buy a property above these limits.

Region
Help to Buy price cap

North East

£186,100

North West

£224,400

Yorkshire and The Humber

£228,100

East Midlands

£261,900

West Midlands

£255,600

East of England

£407,400

London

£600,000

South East

£437,600

South West

£349,000

Applications for the Help to Buy equity loan will run until 31 March 2023.

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National differences

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Find out more about Help to Buy:

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How the Help to Buy equity loan works

  • You need at least 5% of the sale price of your new-build flat or house as a deposit.
  • The government lends you up to 20% (or 40% if you live in London) of the sale price up to the regional limits.
  • You borrow the rest (up to 75%, or 55% if you live in London) from a mortgage lender, on a repayment basis.
  • The equity loan is interest-free for five years.
  • From year 6, you’ll be charged 1.75% which will increase by the Consumer Price Index (CPI) plus 2% (1% if you took the equity loan before December 2019).
  • The equity loan must be repaid after 25 years, or earlier if you sell your home.
  • You must repay the same percentage of the proceeds of the sale as the initial equity loan. So, if you received an equity loan for 20% of the purchase price of your home, you must repay 20% of the proceeds of the future sale. That means if the market value of your home rises, so does the amount you owe on your equity loan. If the value of your home falls, the amount you owe on your equity loan falls too.

An example of how the Help to Buy equity loan works

Cost of home – £200,000
Cost name
Percentage of total
£ value

Your deposit

5%

£10,000

Equity loan

20%

£40,000

Mortgage

75%

£150,000

TOTAL

  

£200,000

Interest rates for paying back your interest free loan

When the interest-free period ends, the interest rates charged on your loan will go up each year in April by the Consumer Price Index (CPI), plus 2%.

Years 1-5: no fees
Year 6: 1.75% of the loan
Year 7 onwards: 1.75% + CPI + 2% (1% if you took the equity loan before December 2019)

You will also pay a £1 monthly management fee by direct debit. When you take out your equity loan, you agree to repay it in full, plus interest and management fees.

An example showing typical interest rate rises on your government loan

Year
Interest rate

1

No interest payments

2

No interest payments

3

No interest payments

4

No interest payments

5

No interest payments

6

1.75%

7

1.82% 

8

1.90%

The figures above assumes CPI is constant at 2% and no reduction in the loan amount.

From the table, your first interest payment will be 1.75% of the amount you borrowed.

Your interest will go up each year in April by the CPI, plus 2%. This is worked out by multiplying the loan amount (purchase price x equity loan percentage). The equity loan percentage will reduce if any part repayments are made.

The interest rate increases every year by adding CPI plus 2%. The interest rate from the previous year is then used to work out the interest rate rise for the following year.

For example, the following shows how any interest rate increase is calculated assuming CPI remains constant at 2% and no payments are made to pay off the government loan:

1.75% (the rate in year 6) + 0.07% (1.75% x (0.02 CPI + 0.02%) = 1.82%

1.83% (the rate in year 7) + 0.07% (1.83% x (0.02 CPI + 0.02%) = 1.90%

When you sell your home

When you sell your home, or the mortgage is paid off, you have to repay the equity loan plus a share of any increase in the value.

An example of how it works when you sell your home

Home bought for £200,000, sold for £250,000

Increase in value

25%

Equity loan repayment

£50,000 (£40,000 + 25% profit)

Mortgage

£150,000 (less capital repayments)

Your share

at least £50,000

The remaining £50,000 (or more) can be used as a deposit on your next home.

The exact amount depends on how much you’ve paid off your mortgage.

You can also pay back part or all of your loan at any time.

The minimum percentage you can pay back is 10% of the market value of your home.

The amount you pay will depend on the market value at the time.

How do I find an equity loan?

Speak to the Help to Buy agent in your local area or a local developer who is registered with Help to Buy.

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More information

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