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01
DEC
2015

How does the Help to Buy scheme work?

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doorsHelp to Buy comes in two parts – a deposit-boosting interest-free equity loan for those buying a new-build home costing up to £600,000 and a guarantee scheme to encourage mortgage lenders to take on those with small deposits.

Equity Loan

The first part of Help to Buy offers to boost small deposits, by delivering an interest-free equity loan of up to 20 per cent of a property’s value, if the buyer also puts down at least 5 per cent. The loan is interest-free for five years, after which a low rate of interest starting at 1.75 per cent and rising gradually each year is triggered.

When the property is sold the borrower repays the equivalent share of their property’s sale value. For example, if their initial loan was 20 per cent of the purchase price, they must repay 20 per cent of the sale price.

Equity loans are available to first time buyers as well as homeowners looking to move. The home you want to buy must be newly built with a price tag of up to £600,000. You won’t be able to sublet this home or enter a part exchange deal on your old home. You must not own any other property at the time you buy your new home with a Help to Buy equity loan.

Mortgage Guarantee

The second part of Help to Buy offers banks and building societies a guarantee against losses on up to 20 per cent of a property’s value, if a home buyer puts down at least a 5 per cent deposit. The aim is to drag mortgage rates on 5 per cent and 10 per cent mortgages down closer to the better deals offered to those with big deposits.

It allows buyers to purchase any property worth up to £600,000, put down a 5 per cent deposit and have the taxpayer underwrite a further 15 per cent – it has been successful in pushing small deposit mortgage rates down.

You must not own any other property anywhere in the world at the time you buy your home supported by the Help to Buy: mortgage guarantee scheme.

Full details can be found here…

 

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