Saving through an ISA or more specifically, a Lifetime ISA, can really help you save for your first home. These ISAs can also be used in conjunction with the scheme above. If you’re planning on buying a home in the next few years, we think this is a no-brainer. Here are the key features of the account:

Lifetime ISA

• You can open a LISA if you’re aged between 18 and 40
• You can deposit up to £4,000 a year in total – no monthly limits
• Every year, the government bonus of 25% is deposited straight into the account so you can easily track how much you can put towards your deposit.
• The bonus is available on properties worth up to £450k anywhere in the UK
• You can’t withdraw the savings in the first 12 months so if you’re planning on buying in the next 12 months, go for the standard ISA option.

Q. Who is the Government Help to Buy Scheme for?
A. First-time buyers, who wish to purchase a new build property when they could not otherwise afford one in their area because they have an insufficient combination of the income and deposit needed to secure the level of mortgage required.

These loans are only available to First Time Buyers trying to get onto the property ladder, and are no longer available to ‘second-movers’, needing to move up the ladder to a bigger home, buy to let landlords or second homeowners.

Q. Who is eligible for the government Help to Buy Scheme – and for what types of property?
A. First time buyers with a minimum deposit of 5% of the purchase price

Buyers who are borrowing from a participating lender

Available in England on New Build properties up to £600,000, (regional caps now apply), up to £400,000 for the version in Scotland and £300,000 for the version in Wales

Residential property, where you plan to live in it and not rent it out

Your only property, so you cannot have an interest in any other property, anywhere in the world

Q. How does the Help to Buy Scheme work?
A. You’ll need to put down a deposit of at least 5% of the property price, the government will give you an equity loan for up to 20%, interest free for the first 5 years, and you’ll need a mortgage of 75% to cover the rest.
If you live in London, you can obtain a loan of up to 40%, so in addition to your 5% deposit you would need a mortgage of 55% LTV.

As a result of providing you with this assistance, the government is entitled to its money back, plus a share in the future sale proceeds equal to the percentage contribution it made to assist your purchase.

This type of loan is known as a ‘shared equity’ mortgage.

Example
Imagine you bought your home initially for £200,000, putting in £10,000 as a deposit and then taking out a £150,000 mortgage and a Help to Buy Equity Loan of £40,000.

If you then sold your property for £250,000, making a £50,000 ‘profit’, you’d get £200,000 (£150,000 from your mortgage, £10,000 cash deposit back and £40,000 as 80% share of the ‘profit’) and pay back £50,000 to the government (the £40,000 equity loan, plus an extra £10,000 as 20% share of the ‘profit’). You’d need to pay off your mortgage with your share of the money.

Q. When will I have to pay back the Equity Loan?
A. The home will be in your name, which means you can sell it at any time. However, you’ll have to pay back the Equity Loan when you sell your home or at the end of your mortgage term – whichever comes first. You can also pay off all or part of your Equity Loan without selling your home.

Q. Are there any fees for the Government Equity Loan?
A. You won’t be charged loan fees for the first 5 years of owning your home. But in the 6th year, you will be charged a fee of 1.75% of the loan’s value. After this, the fee will increase every year in line with inflation. The annual increase in the fees is worked out by using the Retail Prices Index (RPI) plus 1%.

For instance, if the RPI is 5% at the end of Year 6 of your Equity Loan, the fee will increase by 6% from 1.75% in Year 6 to 1.86% in Year 7 (which is 1.75% + (1.75% x 6%) = 1.86%).

Interest is not charged on the version in Scotland.

We can provide you with a more detailed illustration when we help you with finding the right mortgage.

A government-appointed Help to Buy agent will contact you before the fees start, to set up monthly payments with your bank. You’ll also be sent a statement about your Equity Loan each year.

Q. What are the interest rates on the Help to Buy mortgage loan?
A. Help to Buy lenders offer more competitive rates to borrowers with bigger deposits as they carry less risk. This scheme means that they are only lending 75% of the property value, (or 55% in London) rather than 95% which means you will benefit from cheaper rates of interest than you would otherwise.