Help to Buy is a government scheme which is closed to new applications in England and Scotland, but is still active in Wales.
It is an equity loan designed to help first-time buyers get a new-build property by essentially topping up their deposit.
Purchasers need to put down a deposit of at least 5% on their own accord, but can borrow up to 20% of the value of the property with the Help to Buy equity loan. A repayment mortgage then covers the remaining amount.
If you already own a Help to Buy property, read on to find out about interest rates work and how to repay your equity loan.
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How Help to Buy equity loans work
If you already have a Help to Buy equity loan, it's important to remember that it covers a percentage of the property's value, rather than a set cash amount.
This means you might end up paying back more or less than you borrowed, depending on whether your home has risen or fallen in value.
For example, if you took out a 20% equity loan to buy a property worth £200,000 (£40,000), and the property has risen in value to £250,000 when you come to sell, you'll have to repay £50,000.
Equity loans must be repaid in full after 25 years, when your mortgage term finishes, or when you sell your home - whichever happens first.
As the loan is for a percentage of the property price rather than a set cash value, you will repay the market value of the loan at the time, rather than the amount you originally borrowed.
You can also choose to repay part of the loan early in chunks of either 10% or 20% of the total property value.
Help to Buy equity loans are interest-free for the first five years.
From year six, you'll start paying interest at 1.75% of the loan. This rises each year by any increase in the Retail Prices Index (RPI) plus 1%.
In its calculations, the government uses a representative example RPI of 5%, meaning the rate of interest would increase by 6% each year if RPI stayed at that level.
The table below shows representative equity loan interest payments on a £200,000 home with a 20% equity loan (£40,000) outstanding.
6
6%
1.75%
£712
7
6%
1.86%
£754
8
6%
1.97%
£799
9
6%
2.08%
£846
10
6%
2.21%
£896
If you have a larger equity loan, your monthly interest payments will be higher. The maximum Help to Buy limit was set at £600,000 in London, meaning buyers in the capital could find themselves paying thousands in interest each year.
The table below shows the year six costs for more expensive homes bought using Help to Buy.
£300,000
£60,000
£1,062
£400,000
£80,000
£1,412
£500,000
£100,000
£1,762
£600,000
£120,000
£2,112
If you took out a fixed-rate mortgage on your Help to Buy property, you'll need to consider remortgaging at the end of your term.
Unfortunately, many lenders don't offer Help to Buy remortgaging deals. The vast majority of those that do lend will require you to pay off the equity loan in full, either by taking out a larger mortgage and using some of that cash, or by using the equity you've built up since buying (or any other savings you've gathered).
Paying off the equity loan has strong benefits. You'll be able to enjoy 100% of any future uplift in the property's value, you won't need to pay any more interest on the loan, and you'll have a greater choice of deals next time you remortgage.
If you can't pay off the loan when remortgaging, perhaps due to a lack of growth in the value of the property or a change in personal circumstances, you'll have far fewer options, as only a handful of banks offer deals that allow equity loans to remain outstanding.
Who is eligible for Help to Buy in Wales?
It may be closed to new applications in England, but Help to Buy has been extended in Wales. It is set to run until March 2025.
All homes bought through the scheme must not cost more than £300,000 and they need to have a minimum Energy Performance Certificate (EPC) rating of B.
The home must also be bought from a builder registered with the scheme. It needs to be your main residence, not a second home or buy-to-let property.
Help to Buy in Wales is available for both first-time buyers and homemovers.
Alternatives to Help to Buy
Help to Buy was very popular with first-time buyers, but there are other options available to help you on to the property ladder.
First-time buyers with a 5% or 10% deposit can consider getting a low-deposit mortgage.
Taking out a standard mortgage means you won't get assistance from the government, but it also means you won't be limited to buying a new-build home.
The government's First Homes scheme is likely to be the main successor to Help to Buy.
The scheme allows first-time buyers in England to get a 30% discount when buying a new-build home. Councils can set their own eligibility rules (eg limiting properties to local buyers or prioritising key workers).
Shared ownership can help you get on the property ladder in more expensive cities, such as London.
Schemes allow you to buy a share of a property (usually from 25%) from a housing association and pay rent on the remainder.
This allows you to get a foot in the door - but you'll need to do your sums, as the combined cost of your mortgage, rent and service charge can quickly add up.
Guarantor mortgages allow parents to help their child buy a home by using their property or savings as collateral.
A special Help to Buy scheme is available to people in the Armed Forces. If you qualify, you can borrow up to 50% of your salary interest-free to use for a property deposit and other buying costs, such as legal fees.
The maximum loan you can get is £25,000, which needs to be repaid over 10 years. The loan is interest-free.
To be eligible you must:
have completed a minimum length of service
have more than six months left to serve when you apply
meet certain medical categories
not a reservist or a member of the Military Provost Guard Service.
To apply, you will need to go through the Joint Personnel Administration system. Talk to your chain of command or personnel agency for more information.
Forces Help to Buy started out as a government trial but became a permanent scheme in 2023.
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