Help to Buy mortgages have become popular among home movers and first-time house buyers. The government introduced these schemes in an effort to give new buyers a chance to get themselves on the property ladder. Help to Buy schemes also help the wider economy, boost the housing market, and help to sell new build homes.
Help to Buy allows you to purchase a property with a smaller deposit than usual, making purchasing homes more manageable and cheaper.
For most first-time buyers, taking out a large mortgage to cover the full value of a home can be financially demanding. Houses are relatively expensive in the UK, and a huge amount of borrowing will mean paying a large amount of interest too.
But with the Help to Buy mortgage scheme, you only need a small deposit from your savings. The government lends you 20 per cent of the house value, and the remaining 75 per cent is paid with a mortgage loan from a commercial lender. This 75 per cent is much lower than taking out a loan equivalent to 100 per cent of the house value.
Since your mortgage will be smaller, you can more easily meet the requirements and secure the loan for your home. It is also easier for you to get a more competitive interest rate than on a 95 per cent mortgage.
With that said, you are actually borrowing money from two different parties: the government and a commercial lender. After you have bought your home, you still have the responsibility to cover the monthly mortgage payments from your lender. However, since you only took a smaller loan, your monthly repayments will be much more affordable.
On the other hand, the loan from the government does not require you to pay any interest during the first five years.
The Equity Loan is considered one of the best Help to Buy mortgages since buyers have the opportunity to pay a lower mortgage rate for the first five years. However, it is advisable to pay the Equity Loan as soon as possible to make the most of the borrowing.
Also, even though you have no equity loan fees due within the first five years, the amount that you must repay can still increase during this period. This is because the repayment value equity loan from the government is based on a percentage share of your property value. So it, too, rises and falls with the housing market. As your property’s value increases, so will the amount that you need to repay.