The government's Help to Buy equity loan scheme is helping thousands of first-time buyers having a 5% deposit buy a home, but could you be better off with a traditional 95% mortgage over time?
The latest government figures show that 183,947 people in England – including 148,863 first-time buyers – purchased a property having a Assistance to Buy equity loan between 1 April 2013 and 30 June 2022.
However, more than 5 years on from the launch of the Help to Buy scheme, significant problems have started to emerge with remortgaging these deals. Meanwhile, 95% mortgages have become more readily available and rates have become extremely competitive.
So which option helps make the most sense for first-time buyers now? Here, we explore the availability, cost, and benefits and drawbacks from the Assistance to Buy equity loan scheme – and compare it to traditional 95% loan-to-value (LTV) mortgages.
Help to purchase vs 95% mortgages: availability
The Assistance to Buy equity loan scheme allows buyers to mix a 5% deposit with a government equity loan as high as 20% (40% in London) from the property value, meaning you can take out a home loan for just 75% (55% working in london) of the purchase price.
The scheme was brought to help first-time buyers with small deposits and home movers with low equity looking to get on, or move up, the property ladder at a time when 95% loan-to-value deals were scarce. But increasingly more providers have launched products targeted at those with a small deposit since that time.
Moneyfacts data shows that the number of 95% LTV deals available on the market has soared from 159 in January 2022 to 277 in January 2022.
What's more, 95% mortgages have got less expensive. In January 2022 the average two-year fixed-rate 95% deal cost 5.16%, but it has dropped to three.49%.
| January 2022 | January 2022 | January 2022 | January 2022 | |
| Number of all fixed-rate 95% LTV mortgage deals | 159 | 195 | 188 | 277 |
| Two-year fixed-rate average 95% LTV mortgage rate | 5.16% | 4.33% | 4.05% | 3.49% |
Help to purchase vs 95% mortgages: initial costs
So, with increased choice in the market for first-time buyers, it's worth carefully considering which option is best for you.
In the tables below we've taken a look at the very best initial rates on the market for Assistance to Buy mortgages and traditional 95% LTV mortgages, to determine the way the costs compare.
Two-year fixed-rate mortgage deals
In the two-year fixed-rate mortgage market, the difference between the cheapest Assistance to Buy mortgage in a 75% LTV and a 95% LTV mortgage deal is 1.16%.
If you were to take out a lb125,000 mortgage with a 25-year term, that will mean that within the first couple of years you’d pay lb505.22 a month on the 75% deal or lb576.64 on the 95% deal.
Best two-year Help to Buy 75% LTV mortgages
| Lender | Deal | Initial rate | Revert rate | Fees | APRC |
| Barclays | Fixed until 30/04/2022 | 1.59% | 4.24% | lb749 | 3.88% |
| Santander for Intermediaries* | Fixed until 02/04/2022 | 1.64% | 4% | lb999 | 3.70% |
| Santander for Intermediaries* | Fixed until 02/04/2022 | 1.69% | 4% | lb999 | 3.70% |
Best two-year fixed-rate 95% LTV mortgages
| Lender | Deal | Initial rate | Revert rate | Fees | APRC |
| Halifax | Fixed until 28/02/2022 | 2.75% | 4.24% | lb1990 | 4.13% |
| Halifax Intermediaries* | Fixed until 31/03/2022 | 2.75% | 4.24% | lb1699 | 4.11% |
| Halifax Intermediaries* | Fixed until 31/03/2022 | 2.76% | 4.24% | lb1,199 | 4.09% |
Five-year fixed-rate mortgage deals
It's a similar situation when examining five-year fixed-rate mortgages, with a 1.4% distinction between the least expensive Help to Buy 75% mortgage along with a 95% mortgage.
On a lb125,000 mortgage taken out over Twenty five years which means repayments of lb lb527.99 per month with a Help to Buy mortgage or lb617.10 a month for any 95% deal over the initial five-year period.
Best five-year Assistance to Buy 75% LTV mortgages
| Lender | Deal | Initial rate | Revert rate | Fees | APRC |
| Barclays | Fixed until 30/04/2024 | 1.97% | 4.24% | lb749 | 3.49% |
| Santander for Intermediaries | Fixed until 02/04/2024 | 2.09% | 4% | lb999 | 3.39% |
| Barclays | Fixed until 30/04/2024 | 2.14% | 4.24% | lb0 | 3.52% |
Best five-year fixed-rate 95% LTV mortgages
| Lender | Deal | Initial rate | Revert rate | Fees | APRC |
| Saffron Building Society* | Fixed until 31/07/2024 | 3.37% | 4.64% | lb530 | 4.21% |
| Hanley Economic Building Society* | Fixed until 31/01/2024 | 3.39% | 5.44% | lb25 | 4.78% |
| Barclays | Fixed until 30/04/2024 | 3.40% | 4.24% | lb0 | 3.95% |
Help to Buy vs 95% mortgages:
While Assistance to Buy mortgages are overall still cheaper than 95% LTV deals, there are several significant downsides to taking out an equity loan that you simply should consider before jumping in.
Help to Buy costs jump after 5 years: the Help to purchase equity loan is interest-free for that first five years. But from year six, a charge of 1.75% is charged around the loan, which rises annually through the Retail Prices Index (RPI) measure of inflation plus 1%.
Here’s an example of what your costs would seem like if you’d purchased a lb200,000 home coupled with a 20% equity loan (lb40,000) still outstanding:
| Year | RPI + 1% | Annual interest | Annual cost (interest + lb1 a month management fee) |
| 6 | 6% | 1.75% | lb712 |
| 7 | 6% | 1.86% | lb754 |
| 8 | 6% | 1.97% | lb799 |
| 9 | 6% | 2.08% | lb846 |
| 10 | 6% | 2.21% | lb896 |
So you will need to factor in both your Help to Buy home loan repayments and the interest around the Help to Buy equity loan if you don't pay it back within 5 years.
You may end up paying back more than you borrowed: the equity loan is for a portion from the property’s value, rather than the cash sum originally loaned to you. This means that, if your home's value increases, so will the amount you have to pay back.
If you sell before repaying the borrowed funds, you’ll have to use the proceeds to repay your mortgage plus the government loan, which might not leave you with much remaining to purchase your next place.
With a 95% LTV mortgage, you borrow a set sum. So as you start to pay on the mortgage debt your share from the equity will grow so long as the need for your home stays exactly the same or rises.
You can't purchase a period property with Help to Buy: the assistance to purchase equity loan is fixed to new-build properties, whereas with a traditional 95% LTV mortgage you are able to expand your research to include older homes, too.
By not restricting yourself to new-builds, you may be able to find a cheaper property in the region you want to live in. Use our area comparison tool to get the best place to live.
You might pay a 'Help to Buy premium': new-build properties have a tendency to cost more than equivalent older homes, and some critics have argued the difference is even greater with Help to Buy properties.
The price paid by people while using Help to Buy scheme has additionally risen steeply in the last few years. According to government figures, the median cost of a first-time buyer Assistance to Buy home was lb256,995 in England within the second quarter of 2022, up from lb245,000 within the same period the year before.
Remortgaging having a Help to Buy equity loan may be tough: when remortgaging an aid to Buy deal, the outstanding equity loan owed towards the government happens to be an issue.
Which? studies have found there are few lenders offering Assistance to Buy remortgaging products and some is only going to permit you to remortgage should you pay off the full equity loan when you achieve this.
To remortgage you’ll also need to pay legal and valuation costs and get permission from the Assistance to Buy agent.
