Help to Buy deposit: How much do you need?

help to buy deposit five pound note

We take a look at Help to Buy deposits and how much you’re likely to need to save to get the property you want. We’ll answer some of the most frequently-asked questions about Help to Buy deposits. We’ll explain how the scheme works and look at a few examples to help you understand what that looks like in practice.

How much deposit do you need for help to buy?

You will need at least 5% of the sale price of the property you want to buy. The Government will lend you 20% of the sale price (or 40% if the property is in London). Then you’ll need to get a mortgage for the rest of the price of the property – so a maximum of 75%, or 55% in London.

Can I pay more than 5% deposit on help to buy?

Yes, you can pay more than a 5% deposit on a Help to Buy property. However, as with all serious financial decisions, it’s best to speak with an expert adviser to find the best option for you.

Can I use a help to buy ISA for a deposit?

You can use the money that you have put into a Help to Buy ISA for the deposit. However, the 25% bonus the Government adds to that money is only released once you have completed the sale. Here’s how that usually works.

There are two types of deposit needed when buying a house. The home exchange deposit is paid to the person selling you the house once your offer has been accepted and you have exchanged contracts. This is usually 10% of the sale price, although it can be negotiated down.

The second type of deposit is the one you need to pay is the deposit at completion or mortgage deposit. This is what the Help to Buy ISA bonus is used for.

So, if you’ve saved £8,000 and are relying on the £2,000 bonus to get you to your minimum deposit amount of 10% this could be a problem. However, you may be able to negotiate the home exchange deposit down by explaining your situation to the vendor.

How do you qualify for help to buy?

The main eligibility criteria are set out below:

  • You must be at 18 years old
  • The property you buy must be newly-built and not cost more than £600,000
  • You must prove that you can afford the min 5% deposit, monthly fee, interest payments, mortgage and other expenses involved
  • You must not own any other property or enter a part exchange deal on your previous property
  • You may not sublet or rent out your property after buying

For more information on eligibility, see the Government’s guidelines.

What happens after 5 years Help to Buy?

Once you’ve had your equity loan for 5 years, you will start paying interest on the loan. In year 6 you will start paying the initial rate of 1.75%. This rate will then increase every year according to the Retail Prices Index (RPI) measure of inflation, plus 1% – until your loan is fully paid off.

When and why is help to buy ending?

The current Help to Buy scheme is ending in March 2021. However, the Government has extended the scheme, with some changes, until March 2023.

The new scheme that runs from April 2021 to March 2023 will feature a new price cap system that varies according to where your property is in the country. See the Goverment website here for more details.

Is help to buy only for new builds?

Yes, Help to Buy is only for new build properties. The scheme is open to first time buyers or home movers who do not own another property. It runs until March 2021.

Can help to buy be declined?

Yes, your help to Buy application can be declined. This could be for a number of possible reasons, including overdue payments on loans or credit cards and bankruptcy orders or County Court Judgements for more than £500 on your credit history.

It is a good idea to talk with an expert adviser before applying for your Help to Buy loan. They will be able to assess your circumstances and tell you how likely you are to be approved.

Small play doll house with a set of keys next to it

How long does it take for help to buy to be approved?

Help to Buy should reply with Authority to Proceed (ATP) within four working days, as long as all forms have been filled in correctly and you fit the eligibility criteria.

Help to buy Deposit; how does it work?

The UK Government will lend up to 20% of the cost of your newly-built property (40% if you are buying a property in London), through an Equity Loan. You need at least 5% deposit but may pay more. For the first five years you will not be charged interest on the Government loan.

Help to Buy: what are the negatives?

The main benefit of Help to Buy is the first five years of your Government loan being interest-free. However, in year six this changes. You will have to pay 1.75% in year six, after which the interest rate will increase by 1% each year (not including any RPI increase each year). Therefore, one major negative is that your loan will become more and more expensive after year five.

Someone signing a help to buy document

Is it possible to pay off Help to Buy early?

It is advised to pay off as much of your loan off as possible before the end of five years. This is because the Help to Buy loan is only interest-free before year six. To reduce your ongoing costs and begin repaying the equity you have borrowed you can make gradual repayments in a practice known as ‘staircasing’.

Do I need a solicitor when I want to repay my Help to Buy loan?

Yes, you will need to inform the Help to Buy Agency and then instruct a Solicitor to begin the process of paying off your Help to Buy loan. The process will include a valuation of your property. This is because your property’s value may have increased or decreased in value.

Valuations are only valid for six months. After six months you will have to get another valuation to make sure it is up to date. Once you have revalued your property the loan will be the same percentage of the new valuation as what you borrowed before.

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Jan Moys
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Jan Moys

A residential property expert with over 15 years’ experience creating content... Read all

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