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What is the Help to Buy Scheme And How does it Work?

help to buy

Help to Buy is a government backed scheme designed to help first time buyers increase the deposit they have available to them when purchasing their first home. It is aimed at helping get those who have a 5% deposit a property.

What is Help to Buy?

Help to buy takes the form of an equity loan provided by the government, which can be used to purchase a new build home. The loan is available for up to 20% of the purchase price, providing you have a 5% deposit for the property. If the property is in London a loan of up to 40% is available.

The equity loan can’t be used on a second home, nor can it be used to purchase a buy to let property. The property must be the first home you own, “anywhere in the world now or in the past”. If you are married or co-habiting, you must make a joint application. And in this case neither you or your partner must not have owned a home “anywhere in the world now or in the past”.

Is there a Limit To What You Can Borrow?

There are limits to how much you are able to borrow. The amount you can borrow is dependent on where in the country the property you wish to purchase is. Liverpool falls under the North West limit of £224,400. London has the highest limit available which is £600,000. The table below shows the maximum purchase price for all areas of the country.

Region Full Property Price Limit
East £407,400
East Midlands £261,900
London £600,000
North East £186,100
North West £224,400
South East £437,600
South West £349,000
West Midlands £255,600
Yorkshire and The Humber £228,100

How Does the Help to Buy Scheme Work?

The help to buy scheme breaks up the purchase cost of a home into 3 parts. Typically, 5% will be made up of your deposit, 20% will be the help to buy equity loan, and the remaining 75% is made up of your mortgage. This mortgage must be arranged in the standard manner with a lender. The application process for this is separate from your help to buy loan.

What are the terms of the Help to Buy Loan?

The main aspects of the loan are that it is initially interest free. And must be repaid in full within 25 years, or earlier should you sell your home. However, in reality it’s a little more complicated than that.

The loan is interest free for 5 years. Then in year 6, you will begin to be charged interest on the loan. For the first year the interest rate will be 1.75%. This interest rate will then increase by 2% plus the Consumer Price Index each year. There is also a £1 per month management free on the equity loan.

A further term of the loan you will need to take into account, is that you must pay back the same percentage of the selling price, as the initial loan. So if the value of your home increases, the amount you are required to repay will increase in line with this change.

You are able to repay part of your loan at any time. However, the minimum repayment you can make is 10% of the market value at the time you are making the repayment.

Help to Buy – An Example Purchase

The following example is for a property purchased for £100,000 with a 20% equity loan. Which is then sold within the 5 year interest free period for £150,000.

Percentage of Purchase Amount
Purchase Price £100,000
Deposit 5% £5,000
Mortgage 75% £75,000
Equity Loan 20% £20,000


Sale Price £150,000
Mortgage (Less Repayments) £75,000
Equity Loan 20% of Market Value £30,000
Proceeds of Sale £45,000

How We can Help

At City Residential have listings in a number of new build developments which the help to buy scheme was designed to assist you in purchasing. If you would like more information on how help to buy and City Residential can get you in to your first home, get in contact with us today.

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