What is the Help to Buy equity loan scheme?

The clock is ticking for first-time buyers wanting to take advantage of Help to Buy for new-build homes. They can access the equity loan scheme from the government until 31 March 2023.

While it’s just over a year before the scheme ends, it’s best to plan now or you could miss out. Help to Buy was introduced last year to help first-time buyers onto the property ladder.

The scheme itself offers and equity loan and how they work can be complicated. So, to help, we’ve put together a handy guide.

What is the Help to Buy equity loan?

Help to Buy equity loans lend you up to 20% of the value of a new-build home. The loan is interest-free for the first five years.

It means you could buy a home with a 5% deposit, a 75% mortgage and top up the remaining amount with the Help to Buy equity loan.

Who is eligible?

While the scheme is aimed at first-time buyers, not all can access the scheme. You and anyone buying a home must:

• Not own a home or residential land now or in the past in the UK or abroad
• Cannot have had any form of sharia mortgage finance

It means if you are buying with a partner who has owned property in the past, you cannot use the scheme. The idea from the government is to ensure people who have sold properties to appear to be first-time buyers can’t take unfair advantage.

Also, if you have owned properties of any kind, you are not eligible. This includes a holiday home or investment property that you’ve never lived in.

Anyone who is married or in a civil partnership must apply with their spouse or partner, so you won’t be able to take advantage by using just one name on the mortgage.

How does it work?

Help to Buy equity loans allow you to borrow a percentage of your home’s value, not a fixed amount. Should your home increase in value, so does the amount you owe. It also means you owe less if the value falls.

Other points you need to know:

• You will also need to pay a £1 management fee each month until the loan is repaid.
• After the first five years, the interest-free period ends and you will be charged 1.75% on the outstanding amount as interest. This fee increases each year by RPI plus 1%.
• You only repay the interest and not the equity. If you want to reduce what you owe, you will need to make ‘staircasing repayments.
• Finally, you do not have to repay the equity until yo sell your home, or reach 25 years, depending on which is soonest.

Regional caps

The government has split England into 7 regional areas and introduced price caps on the cost of a property. In the North East, this is £186,100.

Help to Buy mortgages

Apart from the Help to Buy equity loan, you will need a repayment mortgage to cover the rest. There are a number of Help to Buy mortgage lenders.

You will need to speak to a Help to Buy agent in your area or a local developer registered for Help to Buy. For details about the Help to Buy agent, visit the government’s website.

If you are successful, you can add the loan to your deposit and get a mortgage for the remaining amount.

Remember, the scheme is closing in March 2023. So, don’t leave it too late to start looking for details about the Help to Buy agent and find out which developments are included.

For more information, you can contact our team for help. We will help you right up until completion and for the lifetime of your mortgage.

Your home may be repossessed if you do not keep up repayments on your mortgage