Help to Buy Schemes and New-Build Mortgages Explained

Person in light blue cardigan receiving a house key from another person

If you’re a prospective first-time buyer, taking advantage of the government’s Help to Buy schemes, also known as the Affordable Home Ownership schemes, can help you to get your foot on the property ladder much quicker. Plus, if you choose the right scheme and use it wisely, it could help you to access more favourable mortgage rates.

The Help to Buy initiative has evolved a lot since it was first introduced in 2013, and there are different forms of support that you can choose from. Depending on your situation, some will be more suitable than others. So, to help you make the best decision and truly reap the rewards, we’re going to provide you with all of the advice you’ll need to harness the power of the most appropriate Help to Buy scheme, and what you need to consider when taking out a new-build mortgage.

If you would like any more help with finding the best mortgage rates and buying your first home, The Mortgage Genie is here to help! Get in touch today and we’ll be more than happy to hold your hand through the process.

Now, let’s jump into what you need to know about the Help to Buy schemes available and the rules surrounding them. We’ll cover:

Read on to find all of the information you’ll require.

What is Help to Buy?

The UK government’s Help to Buy, or Affordable Home Ownership, schemes are designed to help more people enjoy the security of owning their own properties. Due to rising house prices and stagnating wages, buying a property has become more difficult over the last few decades, but the government has put a number of measures in place to support more people with climbing onto the property ladder.

There are a number of different schemes that the government offers right now. So, here, we’re going to outline how they all work and help you to work out which one will be best for you.

Help to Buy Equity Loan

The government’s latest Help to Buy Equity Loan scheme was launched on 1 April 2021, and it’s designed to help first-time buyers purchase a home with a smaller deposit of 5%. This scheme will run until March 2023 and it includes regional property price limits in an effort to ensure the scheme helps the people who need it most.

As part of this scheme, the government will lend new homebuyers up to 20% of the cost of a new-build home, or up to 40% in London.

There is a cost to using an Equity Loan, though, so you should consider this carefully. For the first five years, your loan will be interest-free. Then, from year six, you’ll pay a monthly management fee of £1 and a monthly interest fee of 1.75%. This rate will rise each year in April, according to the Consumer Price Index (CPI), plus 2%. You must repay the equity loan in full, along with interest and management fees:

  • At the end of your equity loan term
  • When you pay off your repayment mortgage
  • Or when you sell your home

The amount you pay back will be worked out as a percentage of the market value at the time you choose to repay. So, it could be more or less than you initially borrowed depending on the value of your home at the time of repayment.

Mortgage guarantee scheme

The government’s mortgage guarantee scheme was launched on 19 April 2021, and it’s designed to increase the supply of 5% deposit mortgages. It supports lenders in offering these products through a government-backed guarantee on new 95% mortgages taken out until 31 December 2022.

This is a great option for people who can afford monthly mortgage repayments but may not be able to save a large deposit before buying. The scheme is available to both new and existing homeowners and can be used on homes with a value of up to £600,000.

First Homes scheme

First Homes is a new scheme that has been designed to help local first-time buyers and key workers to purchase their very first properties. The scheme offers homes at a discount of at least 30% compared to the market price. This could save each new homebuyer an average of £70,000, making their deposits and mortgages more affordable.

To qualify, applicants must have a household income of less than £80,000 (or £90,000 in London). There will also be a post-discount price cap on the first sale of each First Homes property, which will be £250,000 across England and £420,000 in London. Local authorities will decide whether a prospective homeowner qualifies for this scheme depending on factors such as their local connections and whether they’re a key worker, if this is something they choose to take into account.

Shared Ownership

If you can’t currently afford a mortgage that will cover the entire value of a property, the Shared Ownership scheme will offer you the chance to buy a share of a home (between 10 and 75% of its value), and pay rent on the rest. You will then be able to buy bigger shares when you can afford to do so.

This scheme offers a new gradual staircasing model, enabling prospective homeowners to increase their ownership in increments of as little as 1% with heavily reduced fees. The new model of the Shared Ownership scheme will be made available from 2022, but a limited number of homes will be available through this initiative before then.

You can buy a home through Shared Ownership if your household’s earnings are less than £80,000 per year (or £90,000 in London). You may also be eligible for this scheme if you’re a first-time buyer, you previously owned a home but can’t afford to buy one now, or you’re an existing shared owner looking to move to a different property.

With Shared Ownership, you can buy a new-build or an existing property through resale programmes from housing associations, and you’ll either need to buy your share with savings or take out a mortgage.

Lifetime ISA

The Lifetime ISA (LISA) is a long-term savings product that was introduced to support younger people saving for their first homes, or to support themselves later in life. Up to £4,000 can be saved in a LISA each year, and a 25% government bonus is added on top of each new payment.

To be eligible for this scheme, you must be an adult aged 18–39, and be saving for your first home or retirement. And, to put the funds towards a deposit for a first home, the property value must be under £450,000.

Money can be withdrawn from a LISA without charge to purchase a first home, in the case of terminal illness, or from the age of 60. Any other withdrawals will be subject to a 25% government charge. If you intend to purchase a property with your LISA savings, the account will need to be open for at least 12 months before you buy.

Help to Buy ISA

You can no longer open a Help to Buy ISA, as this scheme has been closed to new applicants since 2019. But, if you already have one, you can continue to save up to £200 per month into your ISA until November 2029, or until you’ve put a maximum of £12,000 away. Then you’ll have until 1 December 2030 to claim your 25% bonus from the government.

There have been some snags with the Help to Buys ISA — for instance, because the government bonus is paid after a home has been bought, it can’t be used for the exchange deposit. But it’s been a very fruitful scheme for a lot of first-time buyers. You can use a Help to Buy ISA to buy a home worth up to £250,000, or up to £450,000 in London.

These are the most widely used Affordable Home Ownership schemes that you may be interested in using to buy your first or a new home. The government is developing new products and changing their existing offerings all of the time, so it’s worth keeping your finger on the pulse if you’re planning to buy in the next couple of years.

For more information about every scheme currently available to you, make sure you browse the government’s Own Your Home website for more details.

How does Help to Buy work?

Each Help to Buy scheme works slightly differently, so everything from the application process to how much of your home you’ll own after buying can vary. So, you need to thoroughly research each option and the possible outcomes before taking the plunge.

The government has a Which Scheme is Right for You? quiz on their Own Your Home website, which will collect all of your relevant details and provide you with guidance on which scheme is likely to work best for you. If you’re not too sure which schemes you’re going to be eligible for, or what is required to qualify for each of them, this tool can be very helpful.

A mortgage broker will also be able to help you decide whether to use a Help to Buy scheme and support you with the application if you decide to go ahead with one. At The Mortgage Genie, we’re well-versed in helping our clients to navigate the world of Help to Buy schemes, so we would be happy to talk you through everything and ensure you make the best decision for your situation.

What do you need to know about Help to Buy mortgages?

If you’re using one of the government’s Help to Buy schemes to get on the property ladder, this will need to be taken into account at the mortgage application stage. There are certain mortgage products that may not be compatible with the scheme you choose, while some lenders are more open to Help to Buy applications than others.

Here at The Mortgage Genie, we’ve helped countless buyers to find the best mortgage products and rates to suit their chosen Help to Buy schemes. So, if this is something you need support with, get in touch to speak to our expert team today.

What do you need to consider when buying a new build home?

Some Help to Buy schemes will only allow you to buy a new build home if you apply for support. Plus, you may decide to opt for a new build if you want to move straight in and enjoy your home with no renovations or repairs needed. You may also wish to invest in a new build if you’re looking to avoid becoming caught up in a property chain.

You will need to look at new build houses if you’re going to be using:

  • The Help to Buy Equity Loan scheme
  • The First Homes scheme

You can also look at new builds if you’re hoping to use one of the other schemes available, but you won’t be restricted to these properties.

When applying for a Help to Buy mortgage, it’s worth noting that you may find some lenders charge a higher mortgage interest rate than they would for an older property. This is because these mortgages can be riskier, as there’s a possibility the value of the property could fall in its early years, simply because it’s no longer ‘new’. While this doesn’t always happen, if it does, it will mean the lender has less security for the loan it has provided.

You should also be aware that, if you’re looking at buying a new build home that is off-plan (this means it’s still being built), your mortgage offer will typically only be valid for six months. If you find the development takes longer than this, you may need to reapply and, if your financial circumstances have changed, you might find it much harder to secure the deal you were previously expecting. Plus, if the market value of your new build property rises or falls during the building phase, you will still be required to pay the price that was originally agreed once the building work has been completed. This can then have an impact on your mortgage, so you’ll need to discuss the situation with your lender.

If the value increases, this will be great news for you, as you’ll have more equity, but a fall in value can be very bad news. Your lender might withdraw their offer under these circumstances, or may only agree to give you a smaller mortgage, leaving you with a shortfall that you will need to make up. You will also have a legal obligation to follow through with the purchase or compensate the developer for the sale falling through. There’s a lot to think about when buying a new build — especially one that’s off-plan — so you need to consider all of the potential outcomes before committing.

Buying a new build can be convenient, or even essential if you’re using a particular Help to Buy scheme, but it can come with some risks. A mortgage broker should be able to help you find the best new build mortgage to suit your needs and walk you through everything you need to consider so you make the best possible decision.

If you’re struggling to get on the property ladder or can’t afford to upgrade your current home, there’s bound to be a Help to Buy scheme that will make it less of a challenge. But they all work differently and suit various situations, so you need to choose your scheme carefully and ensure you consider all of the rules and implications.

You may also be forced to buy a new build home if you’re going to be taking advantage of a certain Help to Buy scheme, or you may simply choose to go down this route because it suits your needs best. Purchasing a new build comes with a lot of benefits, but there may also be some risks, so it’s worth enlisting the help of a mortgage broker who can hold your hand through the process and ensure you end up with the best possible mortgage deal.

Here at The Mortgage Genie, we’re here to help you through the homebuying process. If you would like our support, use our mortgage calculator to work out how much you can expect to borrow and get in touch with our team today. We would love to hear about your plans and requirements!

Company Information

The Mortgage Genie Limited is Registered in England and Wales with Company Number 9803176. The Mortgage Genie Limited is an Appointed Representative of PRIMIS Mortgage Network, a trading name of First Complete Ltd. First Complete Ltd is authorised and regulated by the Financial Conduct Authority. Most Buy-to-Let Mortgages are not regulated by the Financial Conduct Authority. The guidance contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.


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