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A guide to the Help to Buy: Equity Loan scheme

A guide to the Help to Buy: Equity Loan scheme

Half a million properties have been bought since 2013 using a government Help to Buy scheme. The Equity Loan scheme, in particular, has been very popular among first time buyers. Let’s take a look. 

Tobi Owens
From the Mortgages team
minute read
posted 16 DECEMBER 2019

What is the Help to Buy scheme?

There are three Help to Buy schemes, set up by the government, that help people to get on, or move up, the  property ladder. They are:

  • Help to Buy: Equity Loan - a loan to help you buy a new-build home in England. There are similar schemes if you live in Scotland, Wales or Northern Ireland.
  • Help to Buy: Shared Ownership - this gives you the chance to buy a share of your home and pay rent on the remaining portion. 

How does Help to Buy: Equity Loan work?

With a Help to Buy Equity Loan, the government lends you up to 20% of the value of a newly built home (up to 40% in Greater London), up to a maximum purchase price of £600,000. To qualify, you’ll need to have saved a deposit of 5% of the property’s value. You’ll borrow the rest (75%) from a mortgage lender.  

Let’s say your new house or flat is valued at £200,000. Your deposit, worth 5%, would need to be £10,000. That means your Equity Loan at 20% would be £40,000, and your mortgage would be £150,000.

In Scotland, first-time buyers and existing homeowners can get support through the Help to Buy (Scotland) Affordable New Build scheme, which can help with up to 15% of the purchase price of a new build. The maximum threshold is £200,000. In Wales, the Help to Buy scheme applies to homes valued up to £300,000. Northern Ireland has a range of different schemes to help first-time buyers.

How do the interest charges on the Help to Buy: Equity Loan scheme work?

Your government loan is interest-free for the first five years. In the sixth year, you’ll have to pay interest at 1.75%. After that the rate increases by 1% more than the Retail Prices Index annually. The interest you pay on your Help to Buy loan doesn’t go towards paying off the loan.  

When you come to sell your property (or the mortgage is paid off), you’ll have to repay the government the same proportion of the home’s value you borrowed in the first place. So, if your Help to Buy loan was for 20% and you sell your home for £300,000, you’ll have to pay back £60,000 (because 20% of £300,000 is £60,000). You can also pay back part or all of your loan at any time.

Who isn’t eligible for the scheme?

A Help to Buy: Equity Loan won’t be available to you if you’re buying a new home in addition to one you already own, or if you’re looking to buy a property that you intend to rent out.

You’ll only be able to benefit from the scheme if you take out a repayment mortgage. With a repayment mortgage, you pay monthly repayments for an agreed period of time (known as the term) until you’ve paid back the amount you borrowed (the capital), plus interest. 

How do I apply for the Help to Buy scheme?

You can start by speaking with a  Help to Buy  agent in your local area, or a developer who’s registered with the Help to Buy scheme.  

Find out more about the Help to Buy: Equity Loan or the Shared Ownership scheme on the government’s website. 

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