Help to Buy – but how does it actually work?

Since this year’s Governments’ budget the news has been littered with information about Help to Buy equity loans. It has been criticised as creating another ‘housing bubble’ and house prices have risen in some areas of the UK considerably since the announcement of the plan, which doesn’t actually come into place until 2015.

The Help to Buy scheme is set to supersede The New Buy Scheme which was aimed at first time buyers buying new homes, where as the new scheme will enable anyone wanting to move into new-build homes up to the value of £600,000.

So at Enable Independent in Bishop’s Stortford we’ve checked out some Help to Buy facts:

You will need to be able to put at least a 5% deposit down on a house, the Government will then be able to give you a loan for up to 20% of the price, enabling buyers to access cheaper mortgages of up to 75% for the rest.

So for example if you wanted to buy a house for £400,000 here are the figures:

Cash deposit of 5% -                                    £20,000
Equity loan from the Government 20% -     £80,000

Mortgage 75% -                                            £300,000

If you wanted to sell your home based on these figures above for £410,000, you would receive £328,00 (80% from your mortgage and cash deposit) and then you would pay back £82,000 on the loan (20%). You would then need to pay off your mortgage with your share of the money.

The home will be in your name which means you can sell it at any time, but you will have to pay back the equity loan either when you sell your home or pay off your mortgage. You will also be able to pay back either 10% or 20% of the amount of the loan as you go along as long as it’s worth at least 10% of the value of your home.

If you take an equity loan out you will not need to pay loan fees for the first five years of owning your new home. After that you will be charged a fee of 1.75% of the loans value, then the fee will increase each year after the sixth year, the increase will be worked out using the Retail Price Index plus 1%.

The agent who deals with your Help to Buy scheme will contact you before the fees start, enabling you to set up monthly payment with your bank. Fees don’t count towards paying back your equity loan.

If you are still confused about what this would actually mean to you buying a new home, then why not contact our team of Independent Financial Advisors and we will be able to give you any help you need applying for the scheme.

Your home may be repossessed if you do not keep up repayments on your mortgage.


Issued by: Enable Independent Financial Life Planners
 25c North Street, Bishops Stortford, Herts CM23 2LD
Telephone: 01279 755950 - Fax: 01279 657339
Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority.
It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us.
NOTHING CONTAINED IN THE ARTICLES SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE.