A quick guide to Help to Buy

Published by Laura Whitcombe on 08 October 2013.
Last updated on 07 May 2014

Buying house

What is Help to Buy?

There are two parts of the Help to Buy scheme. The first is a five-year, interest-free equity loan from the government for buyers of new-build properties worth up to £600,000 in England - provided they can raise a 5% deposit.

This enables the borrower to benefit from lower mortgage rates as they only need to borrow 75% of the property value, instead of 95%.

At the end of the five years, the home owner will start to be charged a fee of 1.75% of the equity loan, rising each year by the retail prices index measure of inflation plus 1%.

The equity loan must be repaid by the end of your mortgage term or when you sell it - depending on which comes first.

The second part is a mortgage guarantee. Banks will offer mortgages up to 95% of the property's value for homes worth up to £600,000 across the UK. This means buyers will be able to put down a deposit of just 5%. The government will then guarantee up to 15% per cent of the property's value, giving the bank the same reassurance had the buyer put down a 20% deposit.

Who can apply for the mortgage guarantee?

Anyone wishing to buy a home - new-build or older - up to the value of £600,000 in the UK to live in as their main residence. The scheme cannot be used to buy second homes or buy-to-let investments. It cannot be used by individuals who own property abroad, either.

Those with county court judgements against from three years prior to application for more than £500 are also unable to apply for the scheme.

What lenders can I apply through?

RBS and NatWest are offering a two-year fixed-rate deal mortgage at an interest rate of 5.39% and a five-year fix at 5.49%. Neither come with fees. 

Halifax has announced two two-year fixes. One has a rate of 5.19% and comes with a fee of £995, and the other has a rate of 5.59% but is fee free.  

HSBC is offering new homebuyers two fixed-rate mortgages up to 95% loan to value (LTV). The bank has a two-year deal at 4.79% and a five-year deal at 4.99%, both reverting to the lender’s standard variable rate (currently 3.94%) with a booking fee of £99. 

Aldermore Bank is providing two-year fixed home loans of up to 95% LTV at an interest rate of 5.28% with no product fee. It was the first bank to make the mortgage guarantee available for those looking to remortgage.

Lloyds is offering two two-year fixes to first timers and home movers. One has a rate of 5.39% (which drops to 5.19% for anyone who has a current account with the bank) and a fee of £995. The other has no fee but the rate is 5.79% (or 5.59% for current account customers).

Santander has three products available, ranging from rates of 4.74% to 5.49%. Its two-year tracker has the lowest rate at 4.74%, no booking fee and comes with a free valuation and £250 cashback. A two-year fix is available on the same terms at 5.09% and a five-year fix is also available at 5.49%. 

Barclays has two fixed rates available, a three-year deal at 4.99% until 30 June 2017 and a five-year version at 5.49% - both have an early repayment charge of 3% of the balance repaid during the fixed period. 

Post Office also has two fixed-rate products on offer through the scheme, a two-year deal at 4.95% and a five-year version at 5.35%. There are no arrangement fees but early repayment charges of 3% and 5% respectively apply.

Virgin Money has three deals. They're fixed-rate products - a two-year, three-year and five-year are available at 5.29%, 5.39% and 5.49% respectively. They come with an admin fee of £99 and an early repayment charge of 2.5%, 3.5% and 5% respectively. However, all give £300 cashback.

OneSavings Bank will also join the scheme but has yet to say when it will start taking applications or announce interest rates and fees.

Are the rates competitive?

They're not always the most competitive 95% LTV deals on the market but they're usually competitive. As with any mortgage, always remember to factor fees. 


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