Guide type: Help to Buy
8th August 2016
Photo Credit: Financial Times Advisor
Help to Buy is a government scheme designed to help keep the market afloat, giving first-time buyers the opportunity to secure a new home with just a 5% deposit. As of December 2016, the Mortgage Guarantee scheme, which enabled buyers to apply for a higher LTV mortgage, expired, however the equity loan is still available to first-time buyers until 2021.
Buyers looking for new-builds will only be able to consider the equity loan, whereby the government loans purchasers up to 20% of the value of the property to go towards the mortgage, which will be combined with 5% buyers have saved up themselves. They will then be able to combine this with a 75% LTV Help to Buy mortgage to make up the value of the property.
Property experts say it’s possible to afford a more expensive property with an equity loan; as 20% of the loan is interest free for five years, you are only paying interest on the 75%, making it easier to find cheaper mortgage rates. The downside of an equity loan is that there is a third party in the equation - in this case, the government – who will have a stake in your home. Albeit, those with an equity loan tend to find it easier securing a mortgage agreement as they have a lower LTV at 75% so credit scoring checks tend to be less stringent.
The majority of Help to Buy mortgages, or other mortgages suited to first-time buyers, generally tend to be fixed-rate, typically between a period of two to five years, rather than a variable, tracker or discount mortgage. This gives buyers a sense of security that their interest rate will not fluctuate, making it easier to budget rather than having the uncertainty that it might rise.
Many high street lenders offer special Help to Buy rates, usually varying between 3% and 6% annual percentage rate of charge (APRC). Buyers are encouraged to do their research and shop around to help them find the best deal instead of simply turning to their local bank.
Banks offering Help to Buy include Barclays, Halifax, Natwest/RBS, Santander, Lloyds Bank and HSBC. According to knowyourmoney.co.uk, HSBC is currently offering the best deal with an initial rate of 3.69%* until 2018.
Barclays and Halifax also have an initial rate and APRC of or less than 4%* with a two-year fixed rate. For those with an equity loan in need of a LTV mortgage of 75%, Natwest/RBS offers the lowest current APRC of 3.8%*.
*Figures are subject to change.