Help to Buy: equity loan

What’s a Help to Buy equity loan?

It’s a Government scheme that offers eligible homebuyers a low-interest loan on the deposit of their home. The programme is designed to help buyers who may not have access to a full mortgage for a home purchase. The programme ended in Scotland and Wales in 2016, but is available in England until 2020.

Who is eligible for a Help to Buy equity loan?

Aspiring homeowners may qualify for the loan whether or not it is for their first home purchase. However, the home must be:

  • a new build
  • have a purchase price of up to £600,000 in England
  • the only home you own
  • your place of residence – you cannot sub-let it or rent it out after you buy it
  • one that you can prove you can’t afford

How does it work?

You’ll be required a 5% deposit on the property. The government will loan you up to 20% of the purchase price (this goes up to 40% in London). You’ll then need a mortgage for the remainder (up to 75%, or up to 55% in London).

An example

Say you’re buying a property that’s priced at £200,000. It could be paid for by:

  • a 5% cash deposit of £10,000
  • an equity loan from the Government of 20% (£40,000) – or 40% in London (£80,000)
  • a mortgage of up to 75% (£150,000) – or up to 55% in London (£110,000)

Will you have to pay equity loan fees?

Yes, but not in the first five years. There is a 1.75% charge. This increases every year, based on the Retail Prices Index (RPI) plus an additional 1%. Depending on market factors, this could potentially cost you more than if you were to buy a flat with a straightforward mortgage, without the equity loan.

When do you have to pay back the loan?

You’ll have to repay the equity loan either after 25 years or when you sell the property, whichever happens first. You can also pay back some or all of the equity loan before the 25-year mark. This is usually in chunks of 10% or 20% of the market value of the property.

Are you guaranteed a mortgage on the loan?

No, lenders will assess whether you can afford to make regular mortgage repayments. It may be useful for you to check your Equifax Credit Report & Score before applying for a mortgage. The report will show you your credit history, and the score will give you an indication of how a lender may view your creditworthiness – it’s free for the first 30 days and then £14.95 a month.

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