What is Help to Buy?
The Help to Buy Equity Loan scheme is a UK government initiative designed to help buyers purchase new-build homes with just a 5% deposit. The government provides an equity loan of up to 20% of the property value (40% in London), enabling buyers to secure a mortgage for the remaining 75% (55% in London).
This scheme significantly reduces the deposit burden for homebuyers and can provide access to better mortgage rates due to the lower loan-to-value ratio. Since its launch in 2013, Help to Buy has helped over 320,000 households onto the property ladder.
How It Works
You put down a 5% deposit, the government lends you up to 20% (40% in London) interest-free for 5 years, and you get a mortgage for the remaining 75% (55% in London). This reduces your mortgage amount and can unlock better interest rates.
Key Features
- Minimum Deposit: Just 5% of the property value required
- Interest-Free Period: No interest charged for the first 5 years
- Property Restrictions: New-build homes only, subject to regional price caps
- Availability: Open to both first-time buyers and existing homeowners
- No Income Restrictions: Unlike some schemes, there are no maximum income limits
Eligibility Requirements
Who Can Apply?
- First-time buyers: Those who have never owned a property before
- Existing homeowners: Current property owners looking to move
- Previous homeowners: Those who previously owned but don't currently own property
- Shared ownership participants: Those moving from shared ownership to full ownership
Property Requirements
- New-build only: Property must be newly constructed by participating developer
- Primary residence: Must be your main home, not investment property
- Price caps apply: Property value must not exceed regional maximum limits
- Standard construction: Property must meet building standards and warranty requirements
Application Process
The Help to Buy application process involves several steps and typically takes 4-8 weeks to complete. Understanding each stage helps ensure a smooth application.
Required Documentation
- Identity: Passport or driving license plus proof of address
- Income Evidence: 3 months' payslips, employment contract, P60
- Financial Statements: 3 months' bank statements showing deposit accumulation
- Mortgage Documentation: Agreement in Principle from participating lender
- Property Information: Sales particulars and reservation agreement
Benefits & Advantages
Lower Deposit Required
Need only 5% deposit instead of typical 10-20%, making homeownership accessible sooner with less savings required.
Better Mortgage Rates
Lower loan-to-value ratio means access to better mortgage interest rates, reducing monthly payments significantly.
Interest-Free Period
No interest charged on government loan for first 5 years, providing substantial early savings on total housing costs.
New-Build Quality
All properties are new-build with modern energy efficiency, lower maintenance costs, and 10-year structural warranties.
Government Backing
Security of government-backed scheme with established processes and consumer protections throughout.
No Income Limits
Unlike some schemes, Help to Buy has no maximum income restrictions, making it accessible to wide range of buyers.
Financial Example
On a £300,000 property: You pay £15,000 deposit (5%), government provides £60,000 equity loan (20%), you need £225,000 mortgage (75%). This could save £200+ monthly vs. 95% LTV mortgage.
Costs & Considerations
Ongoing Costs
- Years 1-5: Interest-free period with no charges on equity loan
- Year 6 onwards: 1.75% annual interest rate, increasing by RPI + 1% annually
- Administration fee: £1 monthly administration charge from year 2
- Property management: Standard mortgage payments plus any service charges
Exit Strategies
- Full repayment: Pay back based on property's current market value percentage
- Property sale: Repay government loan from sale proceeds
- Partial repayment: Pay down portions (minimum 10%) when financially able
- Staircasing: Buy out government share gradually over time
| Year | Interest Rate | Annual Cost (£60k loan) | Monthly Cost |
|---|---|---|---|
| 1-5 | 0% | £0 | £0 |
| 6 | 1.75% | £1,050 | £87.50 |
| 7 | ~3.5% | £2,100 | £175 |
| 8 | ~5.25% | £3,150 | £262.50 |
Important Considerations
Interest rates increase annually after year 5, and you're responsible for property value changes - you'll repay based on current market value, not original loan amount. Plan exit strategy early to manage long-term costs.
Pros vs Cons Analysis
Advantages
- Lower barrier to entry: Significantly reduced deposit requirement
- Better mortgage terms: Access to lower LTV rates and better deals
- New property benefits: Modern homes with warranties and energy efficiency
- Government security: Established scheme with clear processes
- Flexible repayment: Multiple exit options as circumstances change
Disadvantages
- Limited property choice: Restricted to participating new-build developments
- Rising costs: Increasing interest rates after year 5
- Market risk: Repayment based on property value fluctuations
- Regional restrictions: Price caps limit options in expensive areas
- New-build premium: Often higher prices compared to existing properties
Who Should Consider Help to Buy?
- Ideal candidates: Buyers with stable income but limited savings for large deposits
- Strategic users: Those planning to repay early or move within 5-10 years
- First-time buyers: Those comfortable with new-build properties and location restrictions
- Career progressors: Young professionals expecting income growth to manage future costs
Expert Tips & Recommendations
Before Applying
- Research thoroughly: Compare Help to Buy properties with equivalent existing homes in area
- Plan exit strategy: Consider how you'll repay or reduce the equity loan
- Check mortgage options: Ensure multiple lenders offer competitive rates for Help to Buy
- Budget for growth: Factor in future interest costs and property value changes
During the Process
- Use qualified advisors: Work with mortgage brokers experienced in Help to Buy
- Negotiate carefully: Don't assume new-build prices are fixed
- Review all terms: Understand both mortgage and equity loan conditions fully
- Plan completion timing: Coordinate mortgage and equity loan completions
After Purchase
- Monitor property value: Track local market to understand equity loan implications
- Save for repayment: Build fund for partial or full equity loan repayment
- Review regularly: Assess whether early repayment makes financial sense
- Stay informed: Keep updated on scheme changes and exit options
Smart Strategy
Use the 5-year interest-free period to build equity through mortgage payments and potential property appreciation. Many successful Help to Buy users aim to repay significant portions before interest begins.