The Help to Buy (HTB) scheme was introduced by the government as a way of allowing first-time buyers of new build properties to borrow up to 20% of the property’s value in England or 40% of the property’s value in London. The loan is directly paid from the government and the capital is paid back when the property is sold or you are able to re mortgage to raise funds to repay the HTB loan.
Help to Buy - England
The HTB Equity Loan scheme is available for new build properties with a purchase price of up to £600,000 in England. The government will lend up to 20% of the cost of a brand new residential property, meaning that only a 5% deposit is required alongside a 75% mortgage from a lender who provides products for the help to buy scheme.
The government loan is interest-free for the first five years from completion, after which there are costs to consider. From year 6, there is a fee of 1.75%, then RPI plus 1% per annum.
Help to Buy ‐ London
The scheme offers a higher government contribution for homes in London. The Government introduced a London-only version of Help to Buy in February 2016, available across all Greater London Boroughs. Again, 5% personal deposit is required with the Government providing a HTB loan of 40% - the scheme works the same as the nationwide scheme.
With Help to Buy ‐ London, there are no loan fees charged on the 40% loan for the first five years of purchasing the property, apart from a nominal monthly £1 per month fee.
HTB Equity Loan and HTB London ‐ who can apply?
The Help to Buy scheme is available to first-time buyers or homeowners who want to sell their existing property and move, but would like to buy a brand new home with a purchase price of up to £600,000. You are only able to have one property in your name on completion.
Although the scheme requires a minimum deposit of 5%, you would still need to meet the affordability calculations for both the mortgage lender and Help To Buy.
It is advisable to speak with a mortgage broker before you start to look at properties, to understand how the scheme works and what options you have based on your circumstances and affordability. This saves you time later down the line and you know what your budget is for the property.
For first-time buyers, another alternative to help get on to the property ladder is the Shared Ownership scheme. This allows first-time buyers to purchase a share of between 25%-75% of their new home. The size of the share to be purchased will depend on a number of factors: the buyer’s affordability, whether they fit the eligibility criteria and the vendor. A subsidised rent is then paid on the remaining share to the housing association/authority. The minimum deposit required is 5% of the property’s market value.
The shared ownership scheme is designed for and generally only available to first-time buyers however some housing associations may also consider non-first time buyers in certain circumstances – these will depend on the individual housing association and their own specific terms. For example, many housing associations may require buyers to be UK, EU or EEA citizens however others may also consider non-UK citizens, subject to factors such as visa status.
Staircasing allows buyers to purchase additional shares in a Shared Ownership property. This can be done at any time, normally at a minimum of a further 10% share at each time of purchase. The housing association will generally instruct an RICS surveyor to conduct the valuation which could incur valuation fees for the buyer. The price of the share being bought will be a reflection of the current market value at the time of the valuation.
Buying a share in a property means that buyers are liable to pay Stamp Duty Land Tax (SDLT).
Stamp Duty Land Tax can be paid in two ways – a one off payment based on the total market value at the time of the original purchase or it can also be paid in stages. The first payment may be made on the price paid for the lease, as long as it is above the SDLT threshold. Once the share owned is increased to 80%, the SDLT must be paid on both the transaction that took the buyer over 80% and any further transactions.
If you're purchasing a Shared Ownership property, ask your solicitor for advice on which SDLT payment option is best for you.