Help to Buy: Everything buyers need to know about the new scheme
The new Help to Buy equity loan scheme launches today, December 16.
The idea behind the scheme is the government lends extra money to help buyers struggling to get on the property ladder.
The main aspects of the scheme remain the same – but there are a few changes to who can apply and the maximum equity loan you can have in certain areas.
How does the Help to Buy scheme work?
Help to Buy means that you can take out a loan of up to 20% (40% in London) of the price of the property you want to buy from the government.
You can use a deposit of a minimum of 5% and get a mortgage to cover the rest.
The scheme can only be used on certain new build properties so buyers are slightly restricted.
For the first five years, you don’t have to pay anything towards the loan but after that, you have to start paying interest, which can add a lot to your bills every month.
The interest on your mortgage is much lower because the equity loan essentially acts like a much bigger deposit.
You pay the loan back when you sell the property, but as it is an equity loan, if the property goes up in value, you will still have to pay back 20% (or 40% in London) of the value – so can end up paying back more. Of course, if the property decreased in value, you pay back less.
What will change under the new Help to Buy scheme?
Under the new Help to Buy scheme, which opens for applications today, only first time buyers will be able to apply.
Previously, any one who did not own property at the time of application was eligibile so if you owned a house, sold it and rented for a while, you would be able to use the scheme.
Now, anyone who has owned property before will not be eligible.
The new scheme also introduces regional price caps. Previously, the cap was £600,000 across the UK from now, the maximum property price will differ,
In London, it will stay at £600,000. Elsewhere, the caps will be:
- 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
The new scheme will run until 2023, and it is expected that after that point, no more loans will be offered.
Can you still use the old Help to Buy scheme?
Applications for the old scheme closed yesterday but anyone who has submitted an application and is in the process of securing the loan has until March 31, 2021 to complete on their home.
The new scheme itself won’t start until April 2021, so anyone who applies now under the new scheme will not be able to actually get the loan until then, which may delay some people.
How do you apply to the Help to Buy scheme?
You will need £500 to pay a reservation fee, plus proof that you have a deposit of at least 5%, as well as the money to cover solicitors fees, stamp duty and mortgage costs.
Stamp duty is currently scrapped on all homes below £500,000 but this will end on 31 March, so won’t be valid on homes under the new HtB scheme.
However, first time buyers do not have to pay stamp duty on the first £300,000.
If you have your finances in order, you can apply through a local Help to Buy agent.
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