The UK Government introduced the Help to Buy scheme in 2013 as a way to support first-time buyers and home movers in securing a mortgage with a lower deposit. For contractors, the process of getting a Help to Buy mortgage may seem more complex than for employed applicants, but with the right preparation and mortgage advice, contractors can successfully take advantage of the scheme.
This guide explains how Help to Buy contractor mortgages work, the different phases of the scheme, and what contractors need to consider when applying.
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What Is the Help to Buy Scheme?
The Help to Buy scheme was introduced in two phases:
- Help to Buy Equity Loan: This provided buyers with a government-backed loan of up to 20% (or 40% in London) when purchasing a new-build home.
- Help to Buy Mortgage Guarantee: This allowed buyers to secure a mortgage with just a 5% deposit, with the Government providing lenders with financial protection against defaults.
While the Help to Buy Mortgage Guarantee scheme ended in 2016, the equity loan scheme continued and has helped thousands of buyers, including contractors, step onto the property ladder.
Help to Buy Equity Loan for Contractors
Under the Help to Buy Equity Loan scheme, the Government contributes up to 20% of a property’s value (40% in London) as an interest-free loan for the first five years. The borrower must provide a minimum 5% deposit, with the remaining amount covered by a mortgage.
This scheme is particularly useful for contractors who may struggle to save for a large deposit. However, it is only available for new-build homes and must be arranged through approved Homebuy agents. These agents require evidence of a mortgage agreement in principle before granting the equity loan, making it crucial for contractors to work with a specialist mortgage broker who understands their income structure.
Help to Buy Mortgage Guarantee (Now Closed)
Launched in October 2013, the Help to Buy Mortgage Guarantee scheme enabled buyers to purchase properties with just a 5% deposit, with lenders receiving government backing to encourage low-deposit lending. While this phase of Help to Buy is no longer available, contractor-friendly lenders such as Halifax continue to offer low-deposit mortgage options for self-employed professionals.
Risks for Contractors Using Help to Buy
One of the challenges contractors face with Help to Buy is dealing with mortgage advisors recommended by home builders. Many builders require buyers to use their preferred brokers, who may not fully understand contractor income. As a result, these brokers often assess affordability based on salary and dividends alone, ignoring contract-based earnings, which can lead to unnecessary mortgage rejections.
To avoid this issue, contractors should obtain an underwritten mortgage agreement in principle from a contractor-friendly mortgage broker before engaging with a builder. This ensures they can prove their borrowing potential and avoid delays in securing their new home.
Help to Buy London
Recognizing the higher property prices in London, the Government introduced an enhanced Help to Buy scheme for buyers in the capital. From February 2016, the equity loan limit increased from 20% to 40%, reducing the amount that borrowers need to secure through a mortgage.
Under Help to Buy London:
- The buyer provides a 5% deposit.
- The Government provides a 40% interest-free loan for five years.
- The remaining 55% is covered by a mortgage.
This option is particularly beneficial for contractors looking to buy in London, as it reduces the mortgage borrowing required, making repayments more affordable in the early years.
Help to Buy ISAs
The Help to Buy ISA was introduced to help first-time buyers save for a deposit. For every £200 deposited into the ISA, the Government contributed an additional £50 (25% bonus). While new applications for Help to Buy ISAs closed in 2019, those who already opened an account can still claim the government bonus until 2030.
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Looking for Help to Buy Contractor Mortgages?
Navigating the Help to Buy process as a contractor requires specialist knowledge. At Contractor Mortgage Solutions, we help contractors secure the best mortgage deals by assessing their full income potential rather than relying on traditional affordability checks. Whether you’re a first-time buyer or looking to move home, our team can guide you through the Help to Buy application process and ensure you secure the best mortgage for your situation.
Contact Contractor Mortgage Solutions today to explore your Help to Buy mortgage options!