First-time buyers using the government’s Assistance to Buy scheme can benefit from home loan rates of well below 2%, as competition between lenders gets hotter.
It’s been a mixed couple of weeks for Help to Buy – while new data shows the scheme has helped a lot more than 150,000 first-time buyers jump on to the property ladder, it’s also faced criticism over its effect on house price inflation.
While the pros and cons of Help to Buy are extremely available to debate, an area in which the scheme remains highly competitive is in the mortgage deals available to its users.
Here, we take a look at the cheapest rates currently available on Assistance to Buy mortgages, and provide advice on paying down an equity loan before interest takes over.
Nearly 200,000 Help to Buy homes sold
New government data shows that between its launch in April 2013 and also the end of September 2022, 195,219 homes were bought using Help to Buy equity loans in England.
Of these, more than eight in ten (158,013) visited first-time buyers.
On average, buyers using the scheme spend lb255,542 for any property, and benefited from a typical loan of lb54,630. Which means that in total, the federal government has invested over lb10.6bn in equity loans.
Help to Buy mortgages and cheaper rates
When you buy a home in England or Wales using Assistance to Buy, you can obtain a 20% equity loan in the government (it’s 40% in London and 15% in Scotland).
This means you can combine a 5% deposit with the equity loan and take out a home loan on the remaining balance from the purchase price.
Taking out an inferior mortgage means you can benefit from cheaper rates, and there are signs that lenders are cutting the costs of the deals.
For example, a week ago Leeds Building Society cut the rates on its Assistance to Buy range by up to 0.23% on its two and five-year deals.
Lowest rates on Help to Buy mortgages
The tables below show the lowest introductory rates on two-year and five-year fixed-rate mortgages available to people using Assistance to Buy.
As you can see, the least expensive rates on two-year fixes are very well below 2%, while those who wish to fix their rate for 5 years can do so for under half a percent more.
Two-year fixed-rate
| Lender | Lowest initial rate | Revert rate | APRC | Fees |
| Santander | 1.59% | 4.00% | 3.70% | lb999 |
| Barclays | 1.63% | 4.24% | 3.90% | lb749 |
| Halifax | 1.69% | 4.24% | 3.90% | lb999 |
Five-year fixed-rate
| Lender | Lowest initial rate | Revert rate | APRC | Fees |
| Barclays | 2.02% | 4.24% | 3.50% | lb749 |
| Santander | 2.04% | 4.00% | 3.40% | lb999 |
| Halifax | 2.10% | 4.24% | 3.60% | lb999 |
How to help make the the majority of cheap rates
When you buy a Help to purchase property in England, you won’t pay any interest around the government’s equity loan for the first five years.
After this, interest takes over in the rate of 1.75%. Each year, this percentage increases through the level of RPI plus 1% (3.5% at time of writing). With respect to the size of the loan, this means you could face paying hundreds – or possibly thousands – of pounds in interest every year.
And in the current market, it’s unlikely that the value of your property will have grown enough (or that you’ll have repaid enough on your mortgage) to depend on capital growth or equity to pay off the borrowed funds in full after five years.
With this in mind, it seems sensible to make the most of your five-year interest-free period to give you a better chance of settling the borrowed funds before interest kicks in.
When considering your plans for paying down your loan, it’s important to remember that you simply repay a portion of the property’s value in those days, as opposed to the amount that you initially borrowed. Which means that if the value of your house increases, so too will the number you repay.
Persimmon and Assistance to Buy criticism
Help to purchase has developed in the news a lot over the past couple of weeks, and not always for positive reasons.
Persimmon, one of the greatest developers of Help to Buy homes, has faced criticism for announcing record profits of lb1bn, with some reports claiming that the profit it’s made on each house has tripled since Help to Buy launched in 2013.
Furthermore, a study from the Times claimed the developer could lose its Assistance to Buy licence due to allegations of poor building standards and hidden charges.
House price increases
New-build properties are usually more expensive than existing ones, but Assistance to Buy continues to be accused of inflating house price growth on completely new homes.
This may come as new data from the ONS House Price Index estimates year-on-year price increases of 7.2% on new-build homes, in contrast to 2.7% on resale properties.
It’s important to state that these figures are estimates and take into account all new-build homes, not only those sold using Assistance to Buy.
Leasehold scandal
Help to Buy has also belong to fire for its role in the leasehold scandal, where some new-build houses are sold as leasehold rather than freehold (usually only flats can be purchased as leasehold), and both houses and flats are susceptible to rapidly increasing ground rent charges and punitive ‘permission’ fees.
The government is pressing ahead with banning new houses for sale as leasehold, but up to now around 17,975 leasehold houses have been sold under Assistance to Buy.
Changes to Help to purchase from 2022
The government hasn’t turned a blind eye to difficulties with its flagship scheme, and in last year’s Autumn Budget it announced a radical overhaul of Help to Buy from April 2022.
From then, the scheme will only be open to first-time buyers, and also the maximum amount they’ll be able to borrow will be capped based on the region they’re buying in.
You can learn more about the cost caps within our full guide on Help to Buy equity loans.
Help to purchase Scotland and Help to Buy Wales
While the figures in the following paragraphs happen to be based on sales in England, Scotland and Wales also run their very own Help to Buy schemes.
Help to purchase Scotland allows you to obtain a 15% equity loan on the new-build property priced up to lb200,000. Unlike in England, the equity loan remains interest-free.
Help to purchase Wales, meanwhile, offers an equity loan as high as 20% of the worth of a new-build home priced as much as lb300,000. Interest on the loan is phased exactly the same way as with England.
