Cast your mind back to the “good old days” when the housing market was flourishing. People often reminisce about the ease at which they could borrow money and finance their property purchases. The limits on the number of mortgages you could have were non-existent and lending money didn’t seem to be a problem – even for those who didn’t have the best of credit scores. When you think about the housing market at present, what enters your mind? Most people would say all they see is doom and gloom, but it’s not all that bad, and the Help To Buy scheme is a great example of this.
A very common questions asked is "Am I eligible for a Help To Buy Mortgage as a Contractor?" the simple answer is yes, but you definately need a specialist broker such as us to help you through this application process, trying to go it alone may not be the best course of action for you.
If you have never heard of the Help to Buy scheme, this is something that was set up by the UK Government in 2013 in order to help first-time buyers secure their first home.
Under this scheme, the Government will lend you up to 20 per cent of the cost of your newly built home. This means that you are only going to need a deposit of 5 per cent, and then you only need to secure a 75 per cent mortgage, rather than a 95 per cent one. On the loan that the Government has provided, you won’t be charged any fees for the first five years.
What is the Help to Buy Scheme?
Help to Buy Equity Loan (2021 - 2023) – England, there are separate schemes for Scotland, Wales and Northern Ireland.
Help to Buy is a government scheme open to first time buyers to help 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. This scheme opens to new applications from 16 December 2020 and will run until 31 March 2023.
The previous scheme which was known as the Help to Buy Equity Loan (2013 – 2021) this closed for new applications on 15 December 2020, Purchases need to be completed by 31 March 2021, with the main change being it is only open to first time buyers and not existing owners selling their property to move home and there are regional price caps.
You can borrow a minimum of 5% and up to a maximum of 20% (40% in London) of the full purchase price of a new-build home, the developer must be registered with the help to buy agency to qualify for the Equity Loan.
There are regional price caps on property prices, previously it was a blanket cap £600,000 across England.
The caps are as below, to find out your region, you can find out here Help to Buy Regions
| Region | Maximum Property Price |
|---|---|
| North East | £186,100 |
| North West | £224,400 |
| Yorkshire & 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 |
For example, if you bought a home that cost £100,000:
- You will need to contribute a minimum of 5% deposit of £5,000
- You could get up to a 20% equity loan at £20,000
- You then need a mortgage for the remaining 75%, which would be £75,000
- In London the equity loan can cover you for up to 40% instead of just 20%, so the amount of mortgage will be £55,000, in the above worked example for the london area.
You will need to repay the amount you borrow from the government within the term of the mortgage or when you sell the house, you can also choose to pay it back before then, by re-mortagaging your property and releasing the equity built up in you rproperty, there is no guarantee that the equity will increase in your property or you will be able to afford the increase in mortgage required to repay the help to buy equity loan.
Help to Buy Eligibility
To be eligible for Help to Buy: Equity Loan (2021-2023):
- You must be over the age of 18
- You must be a first-time buyer
- The new build home you buy must be within the relevant regional price cap
- You and anyone you’re buying a home with must:
- Not own a home or residential land now or in the past in the UK or abroad
- Not have had any form of sharia mortgage finance.
An eligibility calculator tool will be utilised to check your monthly income and outgoings, including household bills and estimated mortgage repayments in the calculations to check whether you qualify.
- Anyone who is married or in a civil partnership will have to make a joint application with their spouse or civil partner.
Paying back the Help to Buy Equity Loan
You do not pay back the exact amount you borrowed because your equity loan is calculated as a percentage of your property's value.
For example, if you bought a property for £100,000, a 20% equity loan would come to £20,000. If you sold your home later for £200,000, you would have to pay back 20% of this to the government, which would come to £40,000. The government own a stake in your property of the equity loan percentage. You do not need to take the full 20% or in the case of London 40%, you can take just 10%, the choice is yours
- In the first five years this loan is interest free, a direct debit will be set up and charge you £1 per month to keep the account open, after five years you will be charged an additional annual fee until you have paid back the loan.
- This will start at 1.75% of the amount you owe and is charged each year.
- The rate will increase each year by the same amount as the Retail Price Index (RPI) plus 1%. The RPI is a statistic the government uses to measure inflation.
- You can pay this fee with a monthly or annual direct debit.
- If you breach the term of the equity loan you could be asked to repay the loan in full
The amount you pay back is worked out as a percentage of the market value of the property at the time.
If the value of your home rises so does the amount you owe on your equity loan and if the value falls so does the amount you owe on your equity loan.
We are well rehearsed to help you with your help to buy mortgage application and application to the help to buy agents to get you approved for the equity loan.
London Help To Buy – Further Help For Those Buying A House In London
If you are based in London or you are looking to purchase a property here, the benefits of this scheme are further felt. In 2016, the UK Government increased the upper limit for their equity loan. This means that new homebuyers within Greater London can borrow up to 40 per cent rather than 20 per cent, this continues with the Help to Buy Equity 2021 - 2023 scheme.
Contact Us Today To See If You Are Eligible For The Help-To-Buy Scheme
If you are ready to find out what options are available to you, or you have some general queries about the help to buy process, please do not hesitate to send us an email or give us a call. We will provide you with a free, no-obligation consultation over the telephone. You’ve got nothing to lose!
Give us a call to get a comprehensive quote tailored to your position and circumstances as a contractor, get in touch or call us today and speak to one of our expert mortgage brokers on 0203 827 8560
