Valuation

21 October 2022

The Help 2 Buy scheme will be closed to new applications from 6 pm on the 31st October 2022. The scheme launched in 2013 and has helped around 340,000* home purchases.

In fact, the financial advice platform Unbiased estimate that in “the last quarter of 2018 it accounted for over 60 per cent of all new home purchases”.

It works by offering buyers an equity loan of up to 20% of the value of the purchase price of the property. There is no interest charged for the first 5 years and then interest is charged at 1.75%, increasing in line with inflation (Consumer Price Index - CPI) +2%. 

An opportunity to make significant savings

At the moment, some mortgages with a low deposit have interest rates of anywhere between 5 – 6%.  So, if you consider a purchase price of £350,000 on which the government lends 20% (£70,000) at 0% interest for 5 years. That same £70,000 at a 6% interest rate would cost £4,200 per annum or £21,000 over 5 years. With the increase in interest rates, this creates an interesting opportunity for first time buyers to save significant amounts on interest payments.

Help 2 buy Eligibility criteria

Over the years, the property value and eligibility criteria for the Help 2 Buy scheme has changed but now it is restricted for first time buyer mortgages only. 

To be eligible, the property must be your first property, it must be a new-build being sold by a Help to Buy registered homebuilder, you must intend to live in it and you must be 18 and able to afford fees and interests payment. There is also a maximum cap on the value of the property which in the south east is £437,600.

Finally, you must:

·       pay a minimum deposit of 5% of the property purchase price

·       arrange a repayment mortgage of at least 25% of the property purchase price.

How to apply

In order to apply, you must have reserved your home with the homebuilder and have paid a reservation fee of no more than £500. You will also need to fill in a Property Information Form to provide personal and financial information, such as your income and details of the property, your proposed repayment mortgage and your deposit.

Alternative help

Previously, help for homebuyers came in the form of the Help-to-Buy ISA. However that scheme closed to new savers in 2019. However, as an alternative to this, first time buyers can still open a Lifetime ISA.

Lifetime ISAs

A Lifetime ISA can be opened by anyone aged between 18 and 39 and you can save up to £4,000 a year towards your first home or retirement. The government then tops up your ISA with 25% of your savings up to a maximum of £1,000 a year. The interest you earn on your savings is tax free.

That means if you save £1,000 in a year, you'll have £1,250 and if you save the full £4,000, you'll have £5,000.

In order to qualify for the top up, you'll need to buy a property that costs £450,000 or less with any residential mortgage (so you can't be a cash buyer and or a buy-to-let buyer). You also need to have the Lifetime ISA open for at least a year to use it buy a home.

Time is running out

Taking advantage of Help 2 Buy scheme has offered first time buyers a chance to make significant savings. Now, at a time when many first time buyers need help more than ever before time is running out with very limited alternative help in the pipeline!

*Figure correct at 02 December 2021

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