Help to Buy (HTB) is a UK government scheme under which you can receive a government loan of up to 20% of the value of a new home. The intention of the scheme is to enable people to buy houses and encourage house building.
I have created this webpage with the hope of making it clearer exactly how the payment of this loan are calculated. Firstly I will link to the official documents which I have used to build this page, however I find it much more helpful to see the formulas used to make the calculations rather than a wordy, confusing and sometime misleading explanation provided in these documents.
The HTB Buyers Guide PDF (from the site above)
Firstly here is a calculator you can use to see what your HTB payments would be, just edit the input numbers in the orange boxes, then select a year to see the payments. You can also adjust the yearly house price change and the retail prices index (RPI) used to measure inflation. Both the house price change and RPI are assumed constant for this calculator (Download the spreadsheet for something more complex).
There is no interest payable for the first 5 years so the payments are zero. In the 6th year the interest payable is always 1.75% after that the interest payable rises by RPI + 1% each year. The interest payable is always calculated on the initial loan value.
When selling the property you are required to repay the same percentage of the house value as the original loan this is given in any particular year by the capital loan value. The HTB total cost is the total cost of repaying the loan and any interest paid up to that point. Finally the effective APR is the interest rate which would be paid on a loan on the same initial value to result in the same total cost after a particular number of years.
Hope this is useful you can download the Excel spreadsheet used to create this page by clicking the Excel icon at the bottom of the calculator. This lets you see the formulas used and the calculations performed in the background, as well as an overview of all the figures.
PLEASE REMEMBER: This calculator is only to provide a clearer explanation of how HTB works. It is not to be used for financial planning, and when purchasing a house you should consult an independent financial advisor!
If you have any questions or suggestions please post a comment.