Are you struggling with the idea of buying your first home? Are you finding getting a mortgage a painful experience? You’re not alone! 

Our recent research shows that many first-time buyers find the process daunting.  Nearly two-thirds of first-time buyers (62%) have faced difficulties securing a large enough mortgage to buy. And 68% say this is because of their income. Rules about how much they can borrow based on their income make it hard. In fact, 42% say the painful experience of securing a mortgage is putting them off buying a home. 

Given the challenges, it’s understandable that buying a home can be tough, especially in places like London where house prices are 34% higher than the UK average![1] 

Because of these hurdles, 50% of people delay big life events, like getting married or starting a family, trying to save up for a house.  

Two in five (40%) believe that mortgage lenders need to better support first-time buyers by allowing greater borrowing power. Almost half (48%) agreed that if there was a mortgage that allowed them to borrow more to buy, they would find this attractive.  

That’s where we come in. We have a solution with our long-term fixed-rate mortgages from 15 to 40 years. We offer a stable, achievable pathway to owning your own home.  

Arjan Verbeek, Perenna’s CEO and co-founder, stresses the need to tackle challenges for first-time homebuyers. “It’s a travesty younger people are put off from one of the most rewarding experiences in life, becoming a homeowner. Seeing mortgage payments shoot up for millions of people because of how traditional mortgages work will of course put off many would be homebuyers. We need to change this trajectory urgently.   

We believe everyone deserves a chance to own their home and enjoy living in it without worry. Longer-term fixed-rate mortgages are part of this solution, providing greater borrowing power, and stability through payments that don’t shoot up, a far cry from the way traditional high street mortgages work. Perenna’s goal is to make homeownership a reality for first-time buyers and make us a nation of happy homeowners.” 

Are you ready to start your homeownership journey? Want to find out if Perenna could help you? Use our calculator to find out how much you could borrow. It is completely confidential, does not affect your credit score and should only take a few minutes. 

You could lose your home if you don’t keep up your mortgage repayments. 

Notes: 

All data, unless otherwise specified, is taken from 1,025 respondents conducted by Censuswide in January 2024 – all respondents were first-time buyers or those looking to buy their first home.  

Censuswide abide by and employ members of the Market Research Society which is based on the ESOMAR principles.  

 [1] Zoopla HPI January 2024 

N.B rates and content correct at time of publication

Through our long-term fixed rates, we are turning the mortgage world upside down. Here’s how… 

Maximising borrowing power 

If you’re a first-time buyer struggling with mortgage affordability, Perenna could have the solution to open the doors to your home buying dreams.  

We know the question of ‘how much can I borrow?’ can be a top priority. So, we’ve designed a product to help. With our mortgages, you can borrow up to six times your income, subject to criteria. This could act as a huge boost for those struggling to get onto the property ladder. Plus, as our rates are fixed for up to 40 years, we can help lower monthly payments.  

You can find out more in our blog here.

You may wonder how some people could borrow more with Perenna. The answer is simple. The amount you can borrow isn’t usually based on the headline rate. For short-term fixed rate products, it’s actually the rate you are charged after the fixed rate period ends that is important in working this out. You’ll often see this referred to as ‘standard variable rate’ or SVR.  

At Perenna, the rate is fixed for the whole term. The product does not revert to SVR. This means we don’t need to stress-test monthly payments. We know exactly what you’ll need to pay each month. And because we have this certainty, we may be able to lend more.  

Explore our previous blog for a deeper understanding of the impact of SVR on affordability.

Providing certainty  

Taking out a mortgage is probably the biggest financial commitment of someone’s life. Fixing your rate helps to provide certainty. With our longer-term fixed rates, the monthly payment is fixed for the full mortgage term.  This gives payment certainty and peace of mind. Plus, there’s no need to remortgage every few years. And no need to panic about rising interest rates. Borrowers can leave the worry behind and focus on living their lives. Exactly as it should be!  

Flexibility as standard 

We get it. Enjoying predictable payments sounds great. And not having to worry about remortgaging ever again is hugely attractive. But… fixing your rate for up to 40 years is a long time. How are you supposed to know what your life will look in that time? Don’t worry, you don’t need to. We understand that people want the protection of payments that won’t change. But they don’t want to feel trapped.  And that’s why we’ve made sure our mortgage product comes with flexibility as standard. 

We want to make sure our mortgage can fit around your life. If you decide to move home, you can take your mortgage with you, no problem. And if rates come down and you’d like to change your deal, or make unlimited overpayments, that’s absolutely fine. You can do so without charge after five years. 

Why Perenna? 

• Borrow up to 6 times your income, subject to criteria 
• Monthly payments that don’t change 
• Short early repayment charge to give you flexibility 
• No maximum age caps, giving you more options in later life 

Curious about how much you could borrow? Try our mortgage calculator:

Mortgage Calculator | Perenna  

Join the Mortgage Revolution 

At Perenna, we’re on a mission to break down barriers, and make homeownership accessible.  

Whether empowering first-time buyers with increased affordability or providing payment certainty with our fixed-rate terms, we’re committed to revolutionising the mortgage landscape.  

Explore the power of our revolutionary mortgage here:

Join the Mortgage Revolution | Perenna  

You could lose your home if you don’t keep up your mortgage repayments. 

Correct at time of publishing.

Why choose Perenna for your homeownership journey? 

At Perenna, we understand the importance of this milestone and are committed to making your home buying journey as seamless as possible. 

Financial stability: 

Knowing what to budget is key for buying a home. At Perenna, the rate is fixed for the whole term. It does not change to a variable rate. This means we do not need to stress test your payments. You will know exactly what you will need to pay each month. Say goodbye to nasty surprises and hello to payment certainty.  

Personalised solutions: 

Each home buying journey is different. That is why our mortgages are designed to fit your life. Whether you are buying for the first time or moving, Our goal is to provide a mortgage that meets your needs. 

Move with freedom: 

At Perenna, we are flexible That is why you can take your mortgage with you when you move home or change your mortgage to another lender or product without an early repayment charge, after 5 years. 

Guidance at every step: 

We are more than a mortgage provider; we are your partner. From simplifying terms to discussing home trends, we are here to support you every step of the way. For more details on our mortgage offering, visit our website.  

Your next steps with Perenna: 

Are you ready to start your homeownership journey? Want to find out if Perenna could help you? Use our calculator to find out how much you could borrow. It is completely confidential, does not affect your credit score and should only take a few minutes.

You could lose your home if you don’t keep up your mortgage repayments.

 Correct at time of publishing.

Embracing longer terms 

Taking the first step on to the property ladder can often be hard for first-time buyers. Many people now choose mortgages lasting 35 years or more. This change shows the need for new solutions to make home buying easier, especially for those starting on the property ladder. 

Financial impact explained 

When you extend the time to repay your mortgage, you can pay less each month. This is shown below. If you borrow £200,000 with an interest rate of 5.5%: 

[source – https://www.landc.co.uk/calculators/how-much-will-my-mortgage-cost/] 

 This means if you choose a 40-year term instead of a 25-year term you pay £196 less every month. Or £2,352 less each year.  

But, it’s important to know that the total interest you pay increases by £126,687. 

Borrowing potential 

Extending your mortgage period may cut monthly payments, but it doesn’t automatically boost how much you can borrow. If your fixed rate is set for a short amount of time, lenders aren’t sure of the rate you’ll be paying in the future. So, they need to stress test to work out how much customers can afford to borrow. You can learn more about this here. 

Our approach 

Our mortgage is unique. It fixes your interest rate for the full term. This means you’ll never have to worry about rates rising. Plus, our mortgage can fit around your life. You can take your mortgage with you when you move home. And after five years, if you’d like to change your mortgage deal – no problem. You can move to another lender or product without charge.  

Could you borrow more with Perenna? 

We will also lend up to six times a borrowers’ income, subject to criteria. This could help many first-time buyers who struggle with affordability. 

So why not use our calculator to find out how much you may be able to borrow? It’s completely confidential, does not affect your credit score and should only take a few minutes. 

You could lose your home if you don’t keep up your mortgage repayments.

Correct at time of publishing.

We have launched the “highest affordability” ¹ mortgage in the market to first-time buyers.

We’ve officially opened up our flexible long-term fixed rate product to new purchase customers and first-time buyers, within our pilot to selected borrowers.

We will lend up to 95% LTV, with fixed-rate terms up to 40 years, helping borrowers lower their monthly payment amount. We will also lend up to six times a borrowers’ income, subject to criteria, which could act as a significant lending boost for many first-time buyers who consistently struggle with affordability.  

A longer fixed rate term allows many borrowers a higher affordability boost compared to those on a short-term fixed rate mortgage. This is because of the way current mortgage products are designed which place all the market risk on borrowers. Once this is removed, through fixing the rate for the entire term, first time buyers could borrow more. This is the innovation we offer. 

For example, on a £60k joint income, a first-time buyer could borrow up to £355k with us, which is about £70k more than the closest high street lender.2

This could make a massive difference for first time buyers. As a result, borrowers looking to maximise their borrowing responsibly should consider a longer-term fix compared to a shorter-term fix like a 2 year or 5-year fixed rate mortgage.  

 The product also only carries declining early repayment charges (ERCs) for the first five years, making it highly flexible. This gives borrowers certainty that their payments will never increase, as well as allowing them to change when the time is right for them. 

Colin Bell, COO & Co-Founder of Perenna comments:  

“We’re really excited to open up the Perenna Mortgage to first time buyers and new purchase customers. First time buyers are constantly struggling to get onto the housing ladder due to affordability issues – whether that’s saving up enough for a small deposit or being able to borrow enough to afford a home they really want. The Perenna Mortgage is the complete mortgage product – increased affordability combined with long-term stability and flexibility.” 

Arjan Verbeek, CEO & Co-Founder of Perenna comments: 

“We believe in unlocking the power of homeownership without having to sacrifice the amount you can borrow – borrowers should be able to have both their cake and eat it. As we remove market risk from borrowers, customers can borrow what they actually can afford, which in some cases can be on average up to 30% higher than the high street lenders.3 With our full unrestricted UK banking license and recent funding round, we are ready to deliver the much-needed changes in the UK mortgage market, and start delivering better outcomes for homeowners across the country.” 

How much can you borrow?

Want to find out if Perenna could help you? Why not use our calculator to find out how much you could borrow? It’s completely confidential, does not affect your credit score and should only take a few minutes. If you’re eligible to apply, the quote will also let you know how to access a Perenna mortgage.

You could lose your home if you don’t keep up your mortgage repayments.

Notes:

• Footnote 1 – “Highest affordability” defined as highest borrowing amount by use of intermediary mortgage affordability calculators across leading high street lenders2, as at 13 November 2023 
• Footnote 2 – “Leading high street lenders” defined as those who control 75% of the market by gross lending during 2022 – MM10, UK Finance (as at 13 July 2023) 
• Footnote 2 – “Leading high street lenders” defined as – HSBC, Natwest, Nationwide, Santander, Virgin Money, Lloyds Banking Group, Barclays 
• Footnote 3 – Data chart, see below, as at 13 November 2023:

All information correct at time of publication

Getting your foot on the property ladder is a huge milestone in most people’s lives. It’s an exciting time but can be equally as daunting.

Firstly, there’s the thrill of finding your first home. And then there’s the realisation that you’re probably making the biggest commitment of your life.

So, how do you know that you’re making the right decision? Of course, that depends on what matters to you and your own situation. But, here at Perenna, we think we have the perfect combination for First Time Buyers. Stability with flexibility.

The search for stability

When thinking about buying your first home, stability is important. Whether you’re thinking about money, home location or simply how this could affect your future, having a stable outlook can be very reassuring.

That’s where we come in.

We think people are happiest when they aren’t worrying about money. That means less focus on rising interest rates and high energy bills. And more focus on enjoying your home and living your life.  That’s why we offer long-term fixed rate mortgages. By fixing your rate for the full mortgage term, you’ll know exactly what you must pay each month. No teaser rates, no rising payments, no shocks.

Flexibility as standard

Plus, our mortgages are designed to fit around your life. That’s why you can:

• Take your mortgage with you when you move home
• Change your mortgage to another lender or product without charge, after 5 years

How much can you borrow?

Want to find out if Perenna could help you? Why not use our calculator to find out how much you could borrow? It’s completely confidential, does not affect your credit score and should only take a few minutes.

You could lose your home if you don’t keep up your mortgage repayments.

Correct at time of publishing.

The subject of mortgages can be confusing. There are so many on offer and it may be hard to know what’s right for you.

A popular choice is a fixed rate mortgage. This means your monthly payments are guaranteed for a set amount of time. If you like the idea of a fixed rate mortgage, then you have a decision to make. How long do you want to fix your payment for? Of course, there are different options available in the market. You can choose to fix the rate over a shorter term (usually between 2 and 5 years) or a longer term (which could be up to 40 years).

In the UK, there aren’t many longer-term fixed rates out there. We’re changing that with the Perenna mortgage.

Like with anything new, we know it can take time to feel comfortable with a new offering. We appreciate that not everyone fully understands how long-term fixed rates can benefit them. So, we think it’s time to shine a light on some of the myths we’ve come across and show how Perenna’s innovative product can address these. Here are just some of the comments we’ve come across…

Myth 1: They’re not flexible

We say:
Typically, longer term fixed rates offered in the UK have not given borrowers the flexibility they may want. Ten-year fixed rates may come with long early repayment charges which can restrict borrowers.

However, a Perenna mortgage is different. Our product combines long term stability with flexibility. You’ll know exactly what you must pay each month for your whole mortgage term. No teaser rates, no rising payments, no shocks.

Plus, our mortgages are designed to fit around your life. That’s why you can take your mortgage with you when you move home or change your mortgage to another lender or product without charge, after 5 years.

Myth 2: Not many people are interested

We say:
Thousands of people on our waitlist have shown that they are interested. Plus, millions of people across US and Europe already benefit from products like this.

So, why shouldn’t these mortgages work in the UK? Our mortgages have been designed to help:

• first-time buyers looking to borrow a little bit more
• homeowners seeking stability when remortgaging
• later life borrowers wanting to release equity from their property

Myth 3: They’re expensive

We say:
You can’t compare apples and oranges.

Whilst a Perenna mortgage may have a higher rate than some other ‘teaser’ rates on offer, you need to think about how they may compare longer term. For example, if you’re thinking about fixing your rate over a short term, you’ll need to consider what happens when that deal comes to an end. Will you be able to afford a new mortgage if rates rise or your circumstances change? We want to remove this risk.

We don’t think homeowners should have to worry about rates changing or being denied access to mortgage products in the future. That’s where a Perenna mortgage comes in. By fixing your rate for up to 40 years, you’ll know exactly what you must pay each month for your whole mortgage. Can you put a price on peace of mind?

Myth 4: Rates will come down so no need to fix for longer

We say:
Everyone loves a good deal. But is it wise to hazard a guess on what could be your biggest financial decision? Instead of trying to predict the future, you will know exactly what you’ll pay each month with a Perenna mortgage. This puts you back in control of your finances so that you can plan for your future.

Yes, rates could come down, or your circumstances could change. And that’s why our product comes with flexibility as standard. If you want to change, that’s no problem. You can do so without charge after 5 years.

Could a Perenna mortgage be for you?

If you’d like to find out how much you could borrow, why not use our mortgage calculator. It’s completely confidential, does not affect your credit score and should only take a few minutes.

You could lose your home if you don’t keep up your mortgage repayments.

Are you saving up for a deposit or thinking about managing your money better? Then this blog post is for you.

We recently interviewed Charlotte Jessop, also known by her Instagram handle “Looking After Your Pennies”, about financial education, green investing, and her journey from maths teacher to finance blogger with thousands of followers.

How did your time as a teacher equip you to life as a finance blogger?

My background is as a maths teacher. When I was teaching, I needed to put maths into real-life situations to provide context to the learning, but textbooks always use simplified and unrealistic scenarios. While applicable at a basic level, it’s not particularly relevant to real-life.

For topics such as compound interest on the maths curriculum, I would look at how this works in the stock market as an example, or how it works for depreciating assets, like a car, to provide actual practical knowledge to the students I was teaching.

I even invited a financial adviser for a couple of lessons with a challenging class. I’ve never seen my students listen so intently or ask so many questions. That moment was an epiphany – it was clear to me that not only is there a need for better financial education, but there is also a thirst for this type of knowledge.

The result? Well, I decided to marry the worlds of teaching and learning about finances creating Looking after your pennies – the fact that it’s proven so popular shows there is so much demand for this type of information to be easily accessible.

What do you aim to achieve through the Looking After Your Pennies platform?

My mission is to educate as many people as possible about their finances.

I’ve observed that my followers usually fall into one of two categories:

1. They’re oblivious as to how money works, or
2. They’re willing to pay someone else to look after their finances for them.

I aim to create a healthier middle ground where money management becomes a simple task and empower people to make confident decisions about their money with good information to back it up.

How do you think the pandemic has impacted people’s financial wellbeing?

Ultimately, this depends on who you ask. For some, lockdown life on furlough meant they were spending less and saving more. For others, it’s been a stressful time with job insecurity and financial challenges.

The universal component here is that everyone has learned something about their finances – either their saving potential or the fragility of their current financial situation.

How has the advice you’ve given changed since the beginning of the pandemic?

As things got worse during the pandemic, including the economy and finances, the need for Looking after your pennies just increased. When we first started the blog, it was more about providing people with practical tips to help them save money. Then, at the peak of the pandemic, it was all about helping people survive this challenging time.

Now, people realise that we’re heading towards tougher times as energy prices rise, inflation reaches higher levels and national insurance contributions increase. Many people may now need to readdress their finances, make a bit of extra cash, and look to maximise their savings.

What type of guidance do you think people will be looking for this year?

Our lives have been on hold for the past two years, but we can’t be stuck in our pyjamas forever! With restrictions easing, people will want to start travelling again, and I expect many will be trying to find out how they can best save money for a holiday.

At the same time, we’re moving into an unprecedented time for many consumers. Inflation is high, and interest rate rises are now a reality. I bought my home in 2012 when interest rates were 5%(considered good at the time) compared to today’s incredibly low interest rates.

We’ve become so accustomed to this low interest rate world, and there’s a whole generation of people who have never seen rates at 5% or more. These individuals will need to know all about what rising interest rates mean for them and what to do if they are planning to step on the property ladder or remortgage, for instance.

What do you think is the best first step for someone wanting to rejuvenate their finances?

Every time I get the ‘I’ve fallen off the financial wagon’ feeling, I go back to writing down my income and expenses. The action of writing down what I earn shows me exactly how much I’ve got to enjoy, while setting out my expenses tells me what I’m doing with that income. This simple exercise can help find the disconnect between intentions for money and what really happens.

How can I deal with my finances and be eco-friendly?

I love this topic because I’m quite lazy and like to do things that are good for the environment without having to do the small things, like washing out our jam jars. What I mean by that is I like to make financial decisions that have a positive impact and that make you feel good about your efforts to support the green agenda.

I’m open about the fact that my pension and investments are in ethical places. I think it’s sensible to put my money in places that are making positive steps towards tackling climate change without me having to slog over the small things.

As far as I’m concerned, anything green or eco-friendly is the future. There’s going to be a point where we can’t use these finite, fossil-fuel resources anymore. I’m not worried about this being a fad either, so I might as well make a start by taking steps to support green initiatives.

Having your pension invested in something green has a much more significant impact on CO2 emissions than things like reducing your travel on planes, going vegan, taking the bike to work, or reducing your water consumption. If you put your money into an ethical pension fund, rather than just leaving it where your boss thinks it is giving a good return, not only is it having a much more significant impact, but you can feel like you are playing your part in tackling climate change too!

Want to find out more about how you can improve your finances? Click here to visit the Looking After Your Pennies website.

Correct at time of publishing.

Homeownership is a dream of many young people in Britain, but it is a life goal that can take a significant amount of financial planning and resources to make come true. For those yet to step onto the property ladder it can be especially difficult given the rate at which house prices continue to increase in many parts of England.

However, while buying a home is likely to be the biggest investment of many people’s lives, it is not unachievable, and many thousands of people buy their first home each year.

One way they do it is through the Help to Buy scheme, which has been a popular route into homeownership since its launch in 2013. In fact, close to 300,000 properties have been purchased using a Help to Buy Equity loan since it began.

What is Help to Buy?

The Help to Buy Equity Loan is a loan from the Government which can help make it easier for some people to buy their first property. It does this by allowing buyers to step onto the ladder with as little as a 5% deposit and by making it a bit easier to pass the affordability tests put in place when applying for a mortgage. Someone using the scheme can borrow a maximum of 20% (or 40% in London) of the value of their desired home from the Government, meaning they only need to borrow around 75% from a traditional lender.

A buyer purchasing a £200,000 home with Help to Buy would pay:

• A £10,000 deposit
• Then the Government provides a £40,000 equity loan
• Meaning the remaining £150,000 is provided by a normal mortgage lender

The 20% Help to Buy loan is interest free for the first five years but then starts charging interest, meaning borrowers will effectively have two mortgages unless they remortgage onto a new mortgage and repay the help to buy element.

Help to Buy can be helpful for some buyers, however, Government recently introduced changes to the scheme which means anyone using it must be purchasing their first home. If you’re buying as a couple, both people must meet the criteria. Properties bought through Help to Buy must also be new-build and purchased from a homebuilder registered with the scheme. The property value also needs to be within the Government’s regional price caps, which are outlined below.

Are there better ways to step onto the property ladder?

The recent changes to the Help to Buy equity loan have made it more restrictive and limited the types of buyers who can benefit. And, while it will continue to be a good option for some people, the scheme has been criticised for potentially being overly expensive and unnecessarily limiting the types of homes first-time buyers can access. Also, if you use the help to buy scheme then you need to remember that part of the equity growth goes back to the scheme and not to you.

You can read more about the risks of Help to Buy in this blog post Is Help to Buy worth it? 

Fortunately, there are other options…

One alternative is the Government’s new mortgage guarantee scheme. The scheme announced in March 2021 has helped incentivise high street mortgage lenders to offer 95% loan-to-value mortgages. This has boosted the supply of mortgages suitable for buyers with 5% deposits, but while the Government guarantee has helped improve the availability of low-deposit products (a bit like the Help to Buy scheme did), it does not tackle the tough affordability tests applied to mortgage applicants.

Another option for first-time buyers could be a fixed-for-life mortgage. As the name suggests, the interest rate on these mortgages is locked for a much longer period of time than for traditional UK mortgages – which typically have a fixed term of about two or five years. By fixing the interest rate for 30 years or longer, first-time buyers are no longer exposed to potential rate rises, meaning they do not need to pass a stress test to check they can afford the mortgage if interest rates rise. Other affordability criteria remain in place to make sure borrowers and lenders are still protected, but there is altogether more certainty for each party.

What’s great about these mortgages, they keep deposit requirements for first-time buyers as low as 5%, meaning those wanting to buy don’t need to spend decades saving and can instead step onto the ladder sooner. These mortgages could also open the door to buyers in more expensive areas, as a bigger loan size could be accessed than through other products. And, because there is no need to juggle multiple different loans, or select a property that meets the Government’s criteria, these mortgages could provide a much more straightforward route into homeownership for many where the buyer has more market choice.

If a fixed for life mortgage sounds like something that could help you then sign-up to the Perenna waitlist to be the first to hear about when these products become available.

Correct at time of publishing.

Are you a first-time buyer considering buying a property with Help to Buy but find it difficult to understand what it means for you – the consequences and potential risks? This blog post is for you.

What is attractive about Help to Buy?

Help to Buy offers first-time buyers the chance to buy a new build property with just a 5%deposit. The government supports the loan and provides a 20% loan (up to 40% in London) of the property purchase price to make it attractive for mortgage lenders to support first-time buyers. Mortgage lenders will within the Help to Buy scheme finance the remaining 75% of the home purchase. The government loan is interest-free for the first five years.

By lowering the loan to value (LTV), Help to Buy enables you to access lenders more affordable mortgage rates. These rates typically kick in around 75% LTVs, which are more attractive for lenders due to lower risk.

At first glance, this is an attractive proposition, but remember that the government loan is repayable, and interest starts accruing after the initial 5-year term.

Help to Buy risks to consider

The government will take part in an increase in your home’s value when you remortgage or sell it. Plus, the government loan is not a fixed amount. Instead, it’s a percentage of your home’s value. If your home value increase, so does the debt you owe.

For example, if you bought a home worth £250,000 with a 20% Help to Buy loan. You would owe the government £50,000. If your home has increased in value when the time comes to remortgage or sell your home, you might be liable for a much higher amount. Let’s say the home value over five years has increased by 20% to £300,000. Your Help to Buy debt is now £60,000, £10,000 more than the original debt.

Suddenly, Help to Buy is a costly option compared to a standard mortgage which will never increase based on increasing property prices. The incentive to get on the property ladder early and start building home equity has lost its appeal slightly.

Interest rates can get expensive  

In year six, the loan starts accruing interests. The interest is payable in addition to the lender repayments. The interest on the equity loan will be 1.75%. After that, the rate increases each year by the retail price index (RPI) measure of inflation, plus 1%. This is known as ‘staired’ interest. There is no cap on the interest rate, which means the loan can become expensive to maintain.

Restrictions  

Help to buy is only available if you are buying a new build property, with a purchase price of up to £600,000. Also, you have to be a first-time buyer. This rule applies to all people buying the property not just one of you. The property must also be being sold by a Help to Buy registered builder.

Remortgaging can be difficult  

Remortgaging your Help to Buy loan can be difficult. When assessing your affordability, lenders will look at your obligation to repay the Help to Buy loan as a negative factor. If you cannot repay the government loan, you risk reverting to your lender’s Standard Variable Rate when your fixed rate comes to an end. If this happens, you will have to pay a premium on your mortgage while also paying interest on the Help to Buy loan. This could quickly amount to hundreds of pounds extra cost per month.

To prevent this, before you take out a Help to Buy loan make sure that you can remortgage in the future for the full mortgage plus government loan.

How about an alternative?

Help to buy has been immensely popular and helped over 300,000 people buy a home. It’s easy to understand the appeal of the scheme. A 5% deposit and low monthly payments are difficult to resist for prospective home buyers. But sometimes, things really are too good to be true. You must be aware of the risks of Help to Buy and have a plan to repay the government loan before the five years have passed.

Soon there will be a viable alternative to Help to Buy. Fixed for life mortgages will also allow you to buy a home with only a 5% deposit. The interest rate may be higher for the first five years, but you will own your home in full so any increase in value will all belong to you, and your monthly repayments will remain the same throughout the loan term which will be up to 30 years. Fixing your mortgage for life means you can borrow more as the lender does not have to check if you can afford your mortgage if rates rise significantly, this means you probably don’t need the Help to Buy top-up loan, and your mortgage payments will not increase.

This also leaves you free to remortgage if it is in your interest to do so, not because you have to, all without early repayment charge after five years.

Finally, there are none of the constraints if you use fixed for life mortgages. You can buy any property, as long as it meets the lenders wider criteria. You don’t have to be a first-time buyer, and also any value works. Help to Buy helps but has consequences and has restrictions.

Correct at time of publishing.