Here’s what you need to know about the new Help To Buy: Equity Loan scheme

For first-time homebuyers struggling to save for a deposit, help is now available via the new Help to Buy: Equity Loan scheme. Read on to find out more.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Changes brought about by the coronavirus pandemic have made it even more difficult to get on the property ladder in the UK. Not only have house prices risen but people are also finding it more challenging to secure an affordable mortgage.

However, there might be some hope for first-time buyers after the government announced a new version of the Help to Buy: Equity Loan scheme that’s specifically aimed at giving a helping hand to this category of buyers.

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We give you the lowdown on this new scheme and tell you how it could help make your dream of owning a home a reality.

What is the Help to Buy: Equity Loan scheme?

The original Help to Buy scheme was launched in 2013 to help more people get on the property ladder. The current form of the scheme ends on 31 March 2021.

Under the scheme, buyers get an equity loan worth up to 20% (or up to 40% in London) of a property’s value.

First-time buyers need to save a 5% deposit. The Help to Buy loan then helps to boost that deposit. The consequence of a bigger deposit is a better mortgage deal and terms.

Buyers do not pay interest on the equity loan for the first five years.

As for the equity loan, buyers can pay all or a part of it off any time. But any part payment must be worth at least 10% of what the buyer’s home is worth at the time of repayment.

In addition, buyers must pay back the equity loan in full:

  • At the end of the equity loan term (25 years)
  • When they pay off their mortgage
  • When they sell their home

What’s new with the Help to Buy: Equity Loan scheme?

Most of the terms of the new Help to Buy: Equity Loan scheme are the same as the original one. However, there is one main difference.

This time, only first-time buyers can apply. Those who’ve owned a home before, either in the UK or abroad, are not eligible.

Buyers who qualify could reserve homes from mid-December last year and can move in from 1 April 2021. They will pay a deposit of at least 5% and arrange a mortgage of 25% or more to make up the difference.

As an example, suppose you want to buy a home worth £200,000. You’ll have to raise a 5% deposit, which is £10,000. You could then take out a Help to Buy: Equity Loan worth 20% of £200,000, which is £40,000, and then borrow the remaining £150,000 from a mortgage lender.

Are there any other special requirements?

There are caps on the maximum equity loans you can access through the scheme. That limit is 1.5 times the average first-time buyer price in the area you wish to buy a property. For example, the maximum property price allowed is £186,100 in the North East and £600,000 in London.

Like the original scheme, there is no interest on the loan for the first five years. You’ll only have to pay a monthly management fee of £1.

But in year six, you’ll begin paying interest of 1.75%. This will then rise every year after that by the Consumer Price Index (CPI) plus 2%.

How can I apply?

You can apply for the loan with a Help to Buy agent in the area where you’d like to buy a property.

More detailed information on how the scheme works and how to apply can be found in the Homebuyers’ Guide to Help to Buy. You can download a copy of the guide from the gov.uk website.

Is it right for you?

Naturally, this depends on your personal circumstances.

If you are a first-time buyer who is struggling to save up the sizeable deposit needed in your area, a Help to Buy: Equity Loan could make it easier to get on the housing ladder.

However, don’t forget to run the numbers first before you take the plunge. It’s important to make sure you can afford the repayments on your mortgage as well as your commitments with your Help to Buy: Equity Loan.

If you have the funds, you can hire an independent financial adviser or even a solicitor to help you decide whether Help to Buy is right for you.

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