Help to Buy is a Government scheme which makes it possible to secure a property with a deposit of as low as 5%. It’s designed to help those who are able to keep up with mortgage repayments but who struggle to afford an initial deposit, whether they’re a first time buyer or not.
There are currently two different parts to the scheme; an Equity Loan and a Mortgage Guarantee.
The Help to Buy Equity Loan is only eligible on new build properties up to the value of £600,000. This part of the scheme sees you pay a 5% deposit along with a 75% mortgage. The remainder of the property price is paid for through a 20% loan provided by the government. The loan is interest free for 5 years and once the interest free period comes to an end you must pay back a fee. This fee is based on a percentage of the loan borrowed on top of your mortgage repayments.
The second part of the Help to Buy scheme is the Mortgage Guarantee. Again, it is only eligible on properties up to the value of £600,000 but unlike the first phase, it is not specific to new build properties. This part of the scheme again sees you pay a 5% deposit but this time you pay back mortgage repayments on a 95% mortgage. The ‘Mortgage Guarantee’ simply works as a safety net to lenders. If you as the borrower were ever to default on a payment, the government would compensate the mortgage lender for part of the loss. The idea behind the guarantee is to reduce the risk of high loan options, encouraging lenders to offer them. Unlike an equity loan, you will not need to pay back any fees to the Government.
In order to make things a little easier to understand, NatWest has created this helpful infographic which provides a visual explanation of the two different parts of the scheme.