How the Government’s Help to Buy scheme can help you onto the property ladder

Alex Hartley
11th March, 2019
Home-ownership

Help to Buy now has five years of history when it comes to supporting buyers looking to get onto the property ladder. The scheme was set up back in 2013 and, according to official records, has now enabled 494,108 properties to be purchased. Those who have benefited most from the scheme are first time buyers not looking to buy in London. For anyone currently struggling to get onto the property ladder, Help to Buy represents a chance to reach out for a helping hand.

Help to Buy – the options

Currently, Help to Buy support is available as one of three options: the Help to Buy ISA, the Help to Buy Equity Loan or Help to Buy: Shared Ownership.

Help to Buy ISA. A savings scheme topped up by the government. A 25% bonus is paid on top of whatever is saved towards buying a first home, up to a maximum of a £3,000 bonus. Individuals can deposit an initial lump sum of up to £1,200 and then after that save up to £200 a month. A Help to Buy ISA is opened with a bank or building society offering this product. When the time comes to purchase a property, the conveyancer or solicitor is instructed to apply for the bonus amount.

Who can use it? The Help to Buy ISA is directly targeted at first time buyers. It applies to individuals, not households, so two first time buyers making a purchase together could each add their own bonus to the pot (i.e. £6,000 not £3,000).
Other conditions. Buyers must save a minimum of £1,600 before any bonus will be paid out. Below this there is no eligibility for the additional 25%.
Is this the right option for you? Yes, if you are not yet ready to buy but are looking for a way to optimise your savings. It’s also ideal if you’re purchasing with another first-time buyer.

Help to Buy Equity Loan. Buyers can purchase with just a 5% deposit. The government provides an equity loan of up to 20% of the purchase price so that the buyer requires a mortgage of just 75%. There are no fees to pay on the equity loan within the first five years of using the scheme. An equity loan of up to 40% of the purchase price of the property is available to buyers in London, reflecting the significantly higher property prices in the capital.

Who can use it? First-time buyers are eligible for the equity loan scheme as well as existing homeowners who want to move. The scheme is only available to people who don’t own any other property.
Other conditions. The property purchased must be a new build worth £600,000 or less. Homeowners who use the equity loan scheme cannot rent out the property.
Is this the right option for you? Yes, if you don’t have enough saved for a full deposit but can provide 5% of the purchase price. You’ll still need to have enough income and a good enough credit score to successfully apply for a 75% mortgage.

Help to Buy: Shared Ownership. Available for new build homes or existing properties offered through resale programmes from Housing Associations. Anyone looking to use this scheme must have household income of less than £80,000 a year (£90,000 in London). Purchasers buy between 25% and 75% of the value of the property and then pay rent to a Housing Association on the rest.

Who can use it? First time buyers, anyone in an existing shared ownership arrangement. It’s also available to buyers who used to own a home but can’t afford one now.
Other conditions. Shared ownership properties are always leasehold.
Is this the right option for you? Yes, if you meet the eligibility criteria and don’t mind only owning a share of the property.

A note about stamp duty

Stamp duty is a tax that is payable on every property purchase. However, if you are a first-time buyer then you may be eligible for relief. As of November 2017, first-time buyers purchasing a new property don’t have to pay stamp duty on any amount under £300,000. If the property is worth more than this, 5% stamp duty is payable on the amount between £300,000 and £500,000. There is no relief available over £500,000 so regular stamp duty rates apply. For the average first time buyer purchasing a property worth £300,000 or less, this represents a potential saving of up to £5,000.

Getting a foot on the property ladder has become notoriously difficult thanks to a shortage of homes and high prices. However, if you’re eligible for Help to Buy – and you find a property that works for the scheme – there are many more options available.