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Help to Buy Buy a new home with 5% deposit

Help to Buy equity loan


The government backed Help to Buy scheme, along with the Stamp Duty reform, has made buying a new home more affordable. The scheme is available on new build properties and is an option for all home buyers with a 5% deposit.

Typical example worked
on a £150,00 Strata home

Help to buy from strata homes
 
 
This scheme allows you to own 100% of your home and only pay 80% of the price upfront. You provide the 5% deposit and the government will lend you up to 20% as an equity loan. You can then apply for a mortgage based on the remaining 75% of the house price.
 
The equity loan is interest-free for five years and the scheme is available on new build homes up to the value of £600,000.
 

What is the Help to Buy scheme?

The Help to Buy: Equity Loan is a Government-funded scheme that’s helping people onto the property ladder for the first time. The scheme, which will run until 2020, means you can buy your new home with just a 5% cash deposit and a 75% mortgage from a commercial lender to make up the rest. 
 

Key points

  • The Help to Buy loan is worth up to 20% of your new property, meaning you own 100% of your home and pay just 80% of the price upfront.
  • This loan is interest-free for the first 5 years, helping you manage the initial cost of purchasing your new home.
  • You can repay your loan at any time, and any outstanding amount can be repaid in full when you sell your home to move up the property ladder.
  • The aim is created to help you to get on the property ladder or progress to a larger home sooner with financial support. 
 

How does it work?

In effect, this scheme lets you own 100% of your new home and pay just 80% of the price upfront. Your minimum 5% cash deposit, with the maximum 20% offered by the government, means you only need to seek a mortgage based on the remaining 75% of the house price.
 

Step 1 – Choose your new home 

  
Before applying for a Help to Buy equity loan, you first need to choose a new build home that fits your requirements and financial circumstances.

At this stage, you will also be asked to see an Independent Financial Advisor to go over your financial status and look at what mortgages are available to you, to confirm your ability to afford the property in question.
 

Step 2 – Help to Buy process the application

Your local Help to Buy Agent will look over your application, and will consider the following:

  • Affordability: can you afford the principal mortgage payments on a monthly basis? This is based on the Independent Financial Advisor’s assessment.
  • Ownership: have you signed a declaration to confirm the new property will be your only residence? You can only proceed if the new home will be the only property in your ownership.
Within 4 working days of the submission of your application, you will receive an ‘Authority to Proceed’ document if your application is successful. You should let the IFA know so that they can proceed to make a full mortgage application on your behalf with the chosen provider.

This will be accompanied by a pack containing instructions for your solicitor and legal documents, which the solicitor should go through with you.
 

Step 3 – Exchange contracts

A solicitor must act on your behalf throughout the purchase of your home, handling the exchange of contracts and transferring of your own deposit and the money from your mortgage lender to the seller, and in this case, the home builder.

Your solicitor will also handle the transfer of the Help to Buy equity loan to the home builder.

Based on the full mortgage application you submitted (step 3), you will have received a mortgage offer from the lender for the amount they have agreed to lend you. You will sign the sale contract and Help to Buy equity loan, and the solicitor will check to make sure the combined total of your deposit, the equity loan and the mortgage offer are in line with the required amount based on the issued ‘Authority To Proceed’ document.

The solicitor can then request that the contracts are exchanged. At this stage, you will pay your deposit to your solicitor, and the government and mortgage lender will both release their agreed funds

The exchange of contracts means you are now in a legally binding contract to complete the home purchase by the agreed date.

Depending on the build stage of your new home, the builder will give you a completion date. This is when your home will be ready to move in to, and this will serve as the agreed sale date.

NB: While your home is being built, the exchange of contracts can still take place and must happen within 3 months of the Help to Buy application being submitted. The completion of the property must fall within 6 months of the exchange. 
 

Step 4 – Complete the sale

On the completion date, the funds will be transferred, and the home will be legally in your ownership. Soon enough, you will be able to collect your keys.

Your solicitor will confirm with the local Help to Buy agent that the sale has completed. At this stage, a second charge is registered on your home. This entitles the Homes and Communities Agency (the lenders of the equity loan) to a share of the proceeds of the future sale of the house or the value after 25 years (whichever is earlier).

The percentage will be equal to the percentage of the home value that was initially borrowed. I.e. if your equity loan is 20% of the home price at purchase, you will need to pay the Agency 20% of the sale price of the property at the time of sale (if you sell within 25 years). If you still own the home after 25 years, you will owe the Agency 20% at that time. 

 

Who is elegible?

Help to Buy: Equity Loans are available to both first-time buyers and homeowners looking to move. The new property you wish to purchase must be newly built with a maximum value of £600,000.

You cannot sublet the new property and the scheme is closed to buy-to-let investors. If you’re an existing homeowner, you cannot use your old home in a part-exchange deal. At the time of purchase of your new home using a Help to Buy: Equity Loan, you must not own any other property.

 

Our Help to Buy locations

Strata offer homes under the Help to Buy scheme in all our developments. You can view our developments here, or follow the quick links below:

Leeds
Hull
Doncaster
Wakefield
Leicester
The Midlands
Help to Buy
FAQs
Help to Buy FAQs
FAQs about Help to Buy
Find out more about Help to Buy and how it can help you.

Help to Buy FAQs

1.Does help to buy apply to off-plan new build homes?

Yes, you can purchase an off-plan home. However, the sale must be completed within 6 months of the exchange of contracts.

2.Can I access an interest only mortgage with help to buy?

No, your mortgage payments must cover both capital and interest each month.

3.Is part exchange available with help to buy purchases?

No, you cannot part exchange your current home if you choose to use Help to Buy

4.Does stamp duty apply on help to buy purchases?

Yes, Stamp Duty Land Tax (SDLT) rules and procedures remain as standard on Help to Buy purchases. For more information on Stamp Duty and see if it applies to you, click here.

5.What restrictions are there on the properties that I can purchase using help to buy?

There are specific homes on new build developments that are available to purchase with Help to Buy equity loans. The maximum price is £600,000.

6.Can I sublet a help to buy home?

No. The scheme is created to help you to get on the property ladder or progress to a larger home with financial support.  If you decide to sublet the property, you would need to repay the Help to Buy equity loan in full before doing so.

7.Can I own other homes and buy a help to buy home?

No, due to the nature of the scheme you must only use Help to Buy to help you to purchase your only residence. If this is not your first home, a solicitor will need to provide proof that you will no longer own your current home after the purchase of your new home.  

8.Can I use cash from additional public sector bodies along help to buy?

Yes, providing that the funding is considered compatible with the scheme.

9.Can I increase my mortgage or take out an additional loan?

You must have any further loans or mortgage advances approved by the Post Sales Help to Buy Agent.

10.Can I make alterations to the property if purchased using help to buy?

Not without permission from the Post Sales Help to Buy agent. Repaying the equity loan in full is advised before making improvements, as this frees up more funds for the Housing and Communities Agency to help other aspiring buyers. 

11.After the first five years, how is equity load collected?

You can arrange to pay the equity loan back in monthly or annual instalments. This is paid to the Post Sales Help to Buy Agent, via direct debit. You receive an annual statement with a repayment schedule, receipt of payments made and remaining balance to date. 
 

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