Help to Buy scheme explained (and other useful ISAs you should know about)

Published on
3 June 2021

The Government has created various ways of helping first time buyers to get onto the property ladder. The current one is the Help to Buy Scheme. This article explains it and how it differs from the now discontinued Help to Buy ISA.

‘Help to Buy’ is mentioned a lot. What is Help to Buy and how does it work?

The Help to Buy ISA was a different way of saving. You could put in £1,200 in your first payment and then £200 regularly every month. Once you used that money to buy a house the Government would add 25% of whatever was in there to your deposit.

You can no longer open a Help to Buy ISA, although if you already have one you can continue to use it.

Painting in a first time buyers home

So what is the Help to Buy Scheme?

The Help to Buy Scheme is a different way the Government helps people to buy houses. You only put down a 5% deposit out of your own pocket. The Government will provide 20% toward the cost of a house. You would have a 75% loan to value mortgage.

So, effectively, it's helping people buy bigger houses with a smaller deposit.

After five years you start paying interest on the Help to Buy aspect, that 20%. As you pay that mortgage over the first five years you build up some equity so you might own 15-20% of the house potentially when you come back in five years and at that point you've got the leeway to perhaps look at borrowing the money on the mortgage to pay back the Help to Buy loan.

Who should be considering the Help to Buy Scheme?

It's a scheme that's in place to help people who haven't quite got the deposit that they need. It's generally for more expensive new-build properties where the Government is encouraging people to buy those to help them get on the property ladder.

Decorating in a first time buyer's home

What is The Cumberland’s view on Help to Buy?

Deposit-wise, we are asking for 5% at the moment but we're still asking for 15% on new-build properties. If a first time buyer went through the Help to Buy scheme their loan to value is 75% so it's a way of helping them to buy with a smaller deposit. The danger is the property could go down in value potentially, like a new car would. You might not have that room on your mortgage to pay back the Help to Buy loan.

Adam Todd, mortgage and protection advisor at The Cumberland

What other ISAs do the Cumberland offer?

There are two…

An instant ISA which you can add to at any time and take out of at any time. As long as you put a minimum of £1 in, you can save up to £20,000 per tax year. At the moment this offers a variable tax-free interest rate of 0.15%. Like any other ISA, you can only have one per tax year.

The other is a fixed ISA which will probably only benefit someone if they had the majority of their deposit already saved, because once you make a deposit into a fixed ISA you can't add any more into it. You put the lump sum in and it is there for a fixed duration.

Any questions around the Help to Buy scheme, ISAs or anything else? Please feel free to get in touch.

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