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Help to Buy

In March 2013, the government started the Help to Buy scheme which offers one of two options for new homebuyers or home owners looking to move. The first phase was a mortgage equity loan and the second phase rolled out in October 13 is a mortgage guarantee. Both require that the property value does not exceed £600,000, the property is to be your sole residence with no other properties owned and you must take a repayment mortgage.

Mortgage Equity Loan

  • This is only available for new build properties
  • You must provide 5% of the property price as a deposit
  • Government will provide 20% towards a deposit
  • You obtain a 75% mortgage
  • If you sell the property, the government will take a 20% cut of the sale price
  • After the 5th year of holding the loan, you will be charged 1.75% of the loan value and this will increase at 1% above the Retail Prices Index each year

Mortgage Guarantee

  • This is available for the purchase of a new or existing property
  • You pay 5% of the purchase price
  • Government provides a guarantee of 15% of the loan to the mortgage company
  • You will still be borrowing 95% of the property value.
  • Each has their pros and cons. The mortgage equity loan means for the first 5 years you pay no interest on the 20% the government has loaned, just on the 75% mortgage. You are however limited to new build homes and if you do sell for a profit, 20% of any uplift will go to the government and not yourself.

The mortgage guarantee has you paying interest on 95% of the loan from day one. It does allow you to buy existing houses as well as new builds and if house prices continue to rise annually (around 5% increase this year) then when you come to sell, 100% of the profits will be yours.

Dependent upon your circumstances, either could work out better for you. If you’d like further information, feel free to contact me for a list of lenders. If you’re curious about the figures, why not click here for our mortgage calculator. Generally, mortgages cost around 4.5% to 5.5% on these schemes.

Haydar Sehri's blog

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