Help to Buy is the newest of the government schemes trying to get people onto the property ladder or move up it. It’s potentially an exciting opportunity for many people: buy a new or existing house up to a value of £600,000 and get a mortgage with as little as 5 % deposit.  Sounds simple enough but by taking a closer look at it many people find themselves confused by the different terms, examples and calculations they find when reading about it. This is because there are two different options available to suit different requirements.

Help to Buy Equity Loan scheme

  • The Equity Loan scheme began 1st of April 2013.
  • It is only available in England but Wales has its own equivalent in the Share Equity Loan initiative.
  • This option is for first time buyers or people who are looking to move.
  • You must not own another property at the time of purchase under this scheme and you won’t be able to sublet this home.
  • Available only for purchases of newly built houses up to £600,000.
  • The government will provide a loan of up to 20% of the purchase priceenabling applicants to apply for an ordinary 75% Mortgage by providing a minimum 5%  deposit.
  • You must pay your 75% mortgage in the usual way.
  • The loan becomes repayable at the end of the mortgage term or the sale of the house, whichever occurs first and will be 20% of the resale price.
  • The loan is interest free for 5 years and after that you will pay a fee of 1.75%, rising annually by the Retail Price Index (RPI) increase plus 1%.
  • As announced in this year’s Budget, this scheme will now run until the end of 2020.

Help to Buy Mortgage Guarantee scheme

  • The Mortgage Guarantee scheme began on the 1st of January 2014.
  • This option is for first time buyers or people who are looking to move.
  • Available for purchases of existing and newly built homes up to a value of £600,000
  • You must not own another property at the time of purchase under this scheme and you won’t be able to sublet this home.
  • The mortgage taken out must be a repayment mortgage.
  • The scheme enables buyers to take out mortgages of up to 95% with as little as 5% deposit.
  • The government protects the lenders against default by guaranteeing a portion of the mortgage loan to the lender.
  • There is no fee to pay to the government for taking out this supported mortgage.
  • All major lenders in the UK are already part of the scheme.
  • This scheme will run until 31st of December 2016.

So the first option seems better value for money – you can apply for 75% mortgages which normally are offered on better terms than 95% mortgages and you don’t pay any interest on the 20% of the loan for 5 years. But with the second option you can buy any house up to £600,000 and own it outright rather than giving an equity stake to the government.

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