The Help to Buy Scheme closed at the end of October 2022.
Take a look at our shared ownership mortgage calculator to see what you can afford.
Table of Contents
What Was Help To Buy And How Did It Work?
Help to Buy was for new build properties. It was available to both first-time buyers and homeowners looking to move. The Help to Buy Equity Loan was a government-backed scheme. The government provides a loan of up to 20%, or up to 40% in Greater London, of the property value you intend to purchase. This means you would only need to save a 5% deposit and arrange a 75% mortgage, or 55% in Greater London, instead of your typical 90% mortgage.
There were the conditions which you needed to meet to eligible for this scheme, these are;
- You were at least 18 years old
- You would only own one home (the one you are buying)
- The property you were buying is a new build
- The property was worth no more than £600,000
- You were buying a property in the UK
- You would not sublet this home or enter a part exchange deal on your old home
- You did not own any other property at the same time that you buy your new home
So will something else replace it? There is the First Home Schemes available at the moment as well as Shared Ownership.
Was Help to Buy worth it and better than Shared Ownership?
It was hard to say which is better. Both help to buy and shared ownership gave you the opportunity to get on the housing ladder affordably. Demand for either of these schemes will vary across the country. Shared ownership may get more subscribers in one part of the country. However, help to buy was possibly be more popular in another region.
Only needed to save a smaller amount for a deposit – You only needed a 5% deposit to be able to get a help to buy mortgage (although a higher deposit would work out better in the long run)
You could borrow interest free – You did not have to pay interest on your loan for the first 5 years . You still had to pay your mortgage but no interest will be added.
After 5 years you would still get a competitive loan rate – After the 5 year interest free period was over the initial interest rate for the first year was 1.75%, which is reasonable in this current market. Subsequent years after it would rise by 1% as well as increases in the retail price index (RPI)
Cheaper Mortgage Rates – As you will be borrowing a lesser Loan to Value your mortgage rate would be be more competitive.
Cons of the Help to Buy equity loan
Interest on your loan would increase quickly – Once the 5 year interest free period has ended, your loan would increase in value each year. As it was linked to RPI, if that goes up so would your loan.
You could only buy a new build property – You could only use a Help to Buy loan on a new build property, this limited your choice in homes.
Your choice in lender was limited – Not every lender offered help to buy mortgages
You could end up paying more than you have borrowed – As your loan was not fixed, if the value of your home went up you may end up paying more than you have borrowed as the loan was percentage based.
The government could claim its 20% stake – If the equity loan was not repaid whilst you are in the property, when you came to sell it, the government would reclaim its 20% stake in your home at its current value. This may mean the 20% stake was worth more than the loan you borrowed.
What is Shared Ownership and how does it work?
Shared Ownership is a scheme which allows you to buy a share in a property whilst paying rent on the rest, owned by a housing association. ‘Part buy part rent’ is also known a term used to describe Shared Ownership. It is designed to help those with lower incomes and lower deposits get on the housing ladder.
The eligibility for shared ownership varies in countries in the UK:
- Your combined household income must be less than £80,000 (in London, it’s less than £90,000).
- You must be a first time buyer or if you have previously owned a home, you no longer own it or are in the process of selling it.
- If you are an existing shared ownership owner you can sell your current shared ownership home to buy an alternative shared ownership property.
- If you are 55 years old or older, you can buy up to 75% of your shared ownership home. Once you own a 75% share, you do not have to pay any rent to the housing association. This is known as Older People’s Shared Ownership scheme (OPSO)
Is Shared Ownership better than Help to Buy?
As we mentioned above, demand for either shared ownership or help to buy differed across the UK.
You only need a small deposit – As you are only buying a share of the property, your mortgage is only based on that share so will be significantly lower.
More affordable than outright sale – Those who typically earn less are more likely to be accepted for a shared ownership mortgage as the amount lent is lower.
Gradually become a homeowner – You are able to buy a lower share and then staircase to 100% over time rather than trying to save a large sum and pay all at once.
Cons of Shared Ownership
The properties are leasehold rather than freehold – You may therefore have to pay ground rent and service charges on top of your monthly rent.
Decorating restrictions – As the housing provider will own a share in your property, you may not be able to make any alterations to the property
Cost of Staircasing – Your goal may be to staircase to 100% ownership of the property but this costs money via fees every time you would like to staircase.
Selling your property- When it comes to selling your property you have to let the provider market the property for you for 6-8 weeks (first refusal)and if this doesn’t sell the property, you are able to market the property yourself.
First Home Schemes Vs Shared Ownership
No that there is no Help to Buy you need to see what the difference is between the First Home Schemes and Shared Ownership.
Either way you need to be aware of the process for either of these scheme which will involves different costs. These include conveyancing solicitors fees, getting a home buyers survey and removals.
The Help to Buy Scheme and Shared ownership scheme are very similar in the terms that they help people get a foot into the housing market with a smaller and more manageable deposit. They are both also similar in the fact that parts of the homes are owned by either the government (help to buy) or the housing association (shared ownership). The main difference is that you would pay rent and mortgage payments with a shared ownership property whereas you would only pay mortgage payments on a help to buy property.
Shared Ownership is cheaper in the first instance as the deposit is only on the share of the property you are buying. However, if you are wanting to own your home from the start, Help to Buy may be the option for you if you can afford to pay the mortgage for the whole property rather than a a share.
Both of these schemes have their drawbacks and benefits, as listed above. What will be a better option for you is entirely personal. You should speak to a mortgage adviser who could help you in making a decision on which one is best for you.
Once you have made your decision use our moving house checklist which lists the things you need to do when moving house.
Find part buy part rent properties available now
Shared Ownership: Key Topics
- Are shared ownership houses leasehold or freehold?
- What questions should you ask when viewing a shared ownership property?
- What is the downside to shared ownership houses?
- What does shared ownership service charge cover?
- What are solicitors fees for selling shared ownership property?
- Buying or selling shared ownership what are the costs?
- Shared ownership vs renting what will you do?
- How does shared ownership work when you sell?
- Is shared ownership only for first time buyers?
- How does shared ownership staircasing work?
