Many clients, in particular first-time buyers, ask how they can take their first step onto the property ladder. Well, Help to Buy (HTB) may be an option; it offers a contribution towards the purchase price meaning that the client has a wider option of mortgage lenders and a smaller deposit of 5% to fund.
Who Operates Help to Buy?
HTB is an Equity Loan Scheme which is run by the Government.
How does Help to Buy Work?
HTB England will contribute, by way of an Equity Loan, up to 20% (properties in England, excluding London) and up to 40% (properties in London) of the purchase price up to a maximum purchase price of £600,000.
HTB Wales also provides the same as HTB England, with up to 20% contribution for properties bought up to the maximum purchase price of £300,000.
The property you are purchasing must be a newly built home from a builder who is registered with the HTB Scheme.
Through HTB, you only need to raise a 5% deposit of the full purchase price however this is dependent on your chosen mortgage lender. In addition, the mortgage lender must be on the HTB qualifying lenders list.
As a result of HTB assisting in the financing, they have an entitlement to a share of any future sale proceeds of that property equal to the percentage contributed by them.
The equity loan must be repaid after 25 years or earlier if you sell your home. Therefore, if HTB assisted with e.g. 20% contribution, your repayment on the sale of the property back to HTB will be 20% of the total market value when it is sold.
An initial monthly management fee of £1 is payable by direct debit from the commencement of the equity loan until it is repaid. After the first five years, you will pay an additional fee in accordance with the interest charged. The HTB provider will, if you are approved, provide a Work Summary on the payments and interest rates applicable to your equity loan.
Who is Eligible?
The HTB Equity Loan Scheme is open to both first-time buyers and current homeowners purchasing a new build property where that property must be for their main residence.
On completion of the purchase, current homeowners must not own any other property nor enter into a part exchange deal on their old home.
How to Apply
Local HTB agents will assess and approve your eligibility for HTB and you will need their approval before you can proceed with the buying process. They will guide you through your purchase and provide general information about the scheme to deal with your application.
What Happens Next?
Once your application for HTB has been accepted and you have instructed a solicitor to act on your behalf for the upcoming purchase, HTB will issue a “Solicitor Pack” with instructions for the solicitor to follow. In addition, HTB will issue an “Authority to Proceed”.
Your solicitor will then report to you on the HTB Equity Loan and explain the process that follows.