Catie Spink, GCILEx, discusses the Government’s Help to Buy Scheme.

You may have heard the phrase “Help to Buy” in the media lately as there has been a lot of discussion regarding the property market.

In recent years mortgage lenders’ have increased their deposit requirements and most people now have to pay at least 10% of the value of the property they are buying from their savings. This has meant that until the new scheme was put in place many households have been unable to get onto the property ladder for the first time and some, who have managed to buy, are trapped in a property that is not suitable for their current needs because they cannot raise the necessary deposit to be able to move home.

Lenders have become increasingly reluctant to lend to home buyers where a high loan to property value mortgage is required (those who typically have a 5% deposit) because of the increased risk to the lender of losing money if they have to repossess the property and are unable to sell it for the amount originally borrowed.

In April 2013 the Government launched its Help to Buy Scheme which originally applied to first time buyers of new-build properties but now applies to homeowners looking to move as well.  The Scheme is open to anyone as long as this will be the only property they own and will be their permanent residence.

Under the Scheme the Government provides an equity loan of up to 20% of the value of a property up to £600,000. This means that buyer will need to apply for a standard mortgage of 75%, an equity mortgage of 20% and pay 5% deposit themselves. This is a lot more achievable to most buyers.

The equity loan is secured against the property and is interest free for the first 5 years of the term. The interest is then set at 1.75% per year and monthly repayments will need to be made. The loan can be paid off at any time during the ownership of the property or when the property is sold.

One thing to consider is that this is an equity loan rather than a fixed loan so if the value of your property increases with inflation or you carry out an extension at the property for example, the repayment will be 20% of the market value of the property when it is sold so the amount outstanding is likely to increase.

There are other terms and conditions which will be contained within the loan documents and home buyers will still be subject to satisfying the lender’s criteria to obtain a mortgage for the remainder of the purchase price.

If you would like more information on the Help to Buy Scheme the administrators for our region are called BPHA Limited and their website is