Help to Buy Scheme

Help to Buy Scheme

Available to ALL buyers of new homes to a maximum value of £600,000, subject to the purchased home being the buyer’s sole residence. See below for precise details.

The Help to Buy Scheme is set up to assist all purchasers of new homes from April 2013 until the end of March 2020.

New home purchasers will be able to obtain an equity loan of between 20% of the purchase price from the Homes and Communities Agency (HCA).

The remaining amount is to be funded by the purchaser from a cash deposit and a mortgage. The main mortgage must be a repayment mortgage. It is a requirement of the scheme that the purchaser must take out and maintain a first legal charge (the mortgage is secured against the property purchased) with a qualifying lender.  The equity loan will rank as second legal charge.

Qualifying Buyers

Buyers can only purchase a property through the scheme which is to be their main home.  

Buyers cannot apply for the scheme if they are selling their home to the house builder by way of a part exchange.

Applicants will be referred to the local Help to Buy Agent (which is Pilgrims - BPHA - Bedfordshire Pilgrims Housing Association - in this area). They will undertake an affordability check to ensure purchasers can afford their home and the costs of running it.  Applicants who are successful are then approved by the Help to Buy Agent and can then commence their purchase of the home.

Qualifying Properties

Properties must be sold at market value, which must match the mortgage lender’s valuation. Incentives from the house builder are
excluded from the assessment of market value. Incentives are permitted but must be in accordance with the Council for Mortgage Lenders (CML) handbook.

There is a maximum purchase price of £600,000.00.

Properties developed to fulfils 106 obligations or properties previously occupied by a home owner or tenant may not be purchased through the Help to Buy Scheme.

House builders will provide estimates as to how many sales they believe will be assisted with the Help to Buy Scheme and will be given an allocation of the number of sales that can be assisted by the scheme.  They will then be required to meet those estimates or their allocation will be reduced.

The Equity Loan

The equity loan will be provided by the Homes and Communities Agency. It will be for a term of 25 years although early repayment will be possible. Purchasers will not pay interest on the equity loan for the first five years. From year six, interest will be charged on the loan at a rate of 1.75%, payable by monthly instalments. Therefore a £10,000 equity loan will be subject to interest charges of £175 per annum. From year 7 onwards, interest charges will be at a rate of 1.75% plus an increase in line with inflation (RPI) plus 1%.  

On the day of completion of the purchase, the equity loan will be paid directly by the HCA to the house builders solicitors.

If the purchaser decides to sell the property or redeem their main mortgage during the equity loan’s 25 year term, the equity loan is to 
be repaid.  

The amount payable is based on the relevant percentage share of the equity loan to the market value  of the property at the time the loan is repaid. House prices can, of course, go up or down. If the value of the home increases during the term of the equity loan, the amount repayable for the equity loan will be higher than the amount originally loaned, increasing in accordance with the market value of the property.  Furthermore, if the property decreases in value, the equity loan repayable will also decrease. See the following examples.

The equity loan can be repaid in part or in full at any time, subject to a minimum payment of 5% of the equity loan.

How Help to Buy will work in a rising market:

Purchase price: £200,000

Mortgage: £150,000 (75%)

Deposit: £10,000 (5%)

Equity loan: £40,000 (20%)

Sale within 5 years with an increase in open market value (O.M.V.):

Open Market Value: £210,000 (a 5% uplift in value).

Mortgage repayment: £150,000.

Equity loan: 20% of OMV = £42,000

The remaining balance of £18,000 is available to the purchaser to use as a deposit for their next purchase. 

Interest is payable on the equity loan in accordance with the rates set out in paragraph headed “The Equity Loan”.

The HCA will accept the equity depreciation as well as the benefit from any appreciation. Therefore, as long as an owner has otherwise complied with the terms of the mortgage, the HCA will not pursue the owner for payment if there is a shortfall when the mortgage 
is redeemed.   

See example below.

An example of how Help to Buy will work in a falling market is as follows:

Purchase price: £200,000.

Mortgage: £150,000 (75%).

Deposit: £10,000 (5%)

Equity loan: £40,000 (20%).

Sale within 5 years with a decrease in open market value (O.M.V.).

Open Market Value £180,000 (a 10% fall in value).

Mortgage repayment: £150,000.

Equity loan: 20% of OMV = £30,000.

The HCA absorbs a £10,000 loss. The purchaser receives nothing and loses their deposit.

Interest is payable on the equity loan in accordance with the rates set out in the paragraph headed “The Equity Loan”.


How to buy a Help to Buy home

The four-stage Help to Buy buying process.

Stage 1: Application

The buyer contacts house builders, visits schemes of registered house builders and identifies their potential Help to Buy property.

The buyer must see an Independent Financial Advisor (IFA) to gain confirmation of their financial status. The Local HomeBuy Agent
and
house builders will be able to suggest some IFAs .

The buyer must ensure that they have funds to pay: 

a. a reservation fee if required 

b. a deposit on exchange (a mortgage deposit is typically 5% although some schemes may require higher or lower deposits at exchange 
of contracts) 

c. other fees on completion (e.g. stamp duty, legal fees). 

The buyer must complete a Help to Buy “Property Information Form” (available from the house builder). The buyer must complete
this with details of their proposed purchase, their proposed main mortgage, deposit and household income. 

The buyer then reserves their home and will usually be expected to pay a reservation fee to the house builder

The signed Property Information Form and a copy of the builder’s signed reservation form must be sent to the Local HomeBuy Agent.


Stage 2: Authority to Proceed

The Local HomeBuy Agent checks the buyer can afford the main mortgage and ensures the buyer has signed the declaration that the Help to Buy home will be your only residence. 

If affordable, the buyer will receive an “Authority to Proceed” from the Local HomeBuy Agent within four working days of the house builder submitting the fully completed Property Information Form and reservation form to the Local HomeBuy Agent. 

The buyer instructs a solicitor to act for them and the mortgage application can be submitted.

The ‘Authority to Proceed’ will be accompanied by instructions to the buyer and their solicitor/conveyancer.  This pack will include 
legal documents.


Stage 3: Mortgage offer and exchange of contracts

The Buyer’s solicitor/conveyancer will advise the buyer and ensure they sign the sale contract and the Help to Buy equity loan.  

Your Local HomeBuy Agent issues approval to the buyer’s  solicitor/conveyancer and contracts are exchanged. The buyer will pay a deposit and are now legally contracted to complete the purchase by an agreed date.

The period of time between exchange of contracts and legal completion (moving in day) must be not less than 14 days to allowsufficient time for the equity loan funds to be paid to the buyer’s solicitor by the agency.


Stage 4: Completing the purchase

At completion, the buyer’s lender provides its funds and the Agency will pay the equity loan funds to the house builder.
Once completion
has taken place, the buyer owns the property and can move in. 

The  buyer’s solicitor returns confirmation of the sale to the Local HomeBuy Agent who then registers the buyer’s details with the
Post
Sales Home Buy Agent. 

A second charge is registered on the property by the buyer’s solicitor in favour of the Agency, entitling it to a share of the future sale proceeds. The charge will be equivalent to the percentage contribution made towards the purchase price. The buyer must repay the percentage contribution when they sell the home or after 25 years (whichever is earlier).

 

The official Government Help to Buy website:  www.helptobuy.gov.uk/equity-loan/equity-loans/

Head Office

Norfolk Homes, Weybourne Road Ind. Est., Sheringham, Norfolk NR26 8WB.
Telephone: 01263 825679
Email: enquiries@norfolkhomes.co.uk
© Norfolk Homes Limited, Weybourne Road Ind. Est., Sheringham, Norfolk, NR26 8WB Tel: 01263 825679 email: enquiries@norfolkhomes.co.uk

website design by www.garethjamesdesign.co.uk