What To Know About The Help To Buy: Equity Loan Scheme (England, 2021-2023)?
What is Help to Buy: Equity Loan?
The Help to Buy: Equity Loan is a loan from the government that is put towards the cost of buying a newly built home. This scheme is aimed at first-time buyers to help them get on the property ladder. You can borrow up to 20% (40% if you’re in London) of the market value of your new home. The loan is interest-free for 5 years and on the 6th year, you begin to pay interest every year after the interest rate increases.
Other parts of the UK such as Wales, Scotland, and the Republic of Ireland have their Help to Buy scheme.
Who is eligible for Help to Buy: Equity Loan?
To be eligible you must be the following:
A first-time buyer
Not own a home or residential land now or in the past in the UK or abroad
Not have had any form of sharia mortgage finance
You can afford the monthly fee and interest payments
The home you are purchasing is a new build home
If you are married or in a civil partnership, you will need to have a joint application with your spouse or civil partner.
If you can secure a large deposit and can secure a mortgage without the Help to Buy: Equity Scheme, consider if the scheme is right for you.
Are Help to Buy homes good?
All Help to Buy homes are newly built homes and to ensure they are built to a high standard, home builders agree to follow:
Consumer Code for Home Builder
New Homes Ombudsman
Star rating homebuilders
Building Safety Charter
Planning permission and building regulations
New Home warranty
All the listed above are there to ensure that the home is built to a high standard and the quality of customer service you receive once you moved in is the same as everyone else. You can ask the sales team for more information.
Do I have to pay Ground Rent on lease properties?
Under the Help to Buy scheme, homebuilders are not allowed to charge you ground rent.
How does it work?
The government will lend you a minimum of 5% and up to 20% (or up to 40% in London) of the market value of your newly built home. The amount you can spend on the home depends on where in England you buy your property.
Taken from the Help to Buy Buyers Guide
You must:
Pay a deposit of 5% of the purchase price of your new home at the exchange of contract
Arrange a repayment mortgage of at least 25% of the purchase price of your new home
Example of how much your deposit, mortgage, and equity loan maybe if you buy a new home worth £200,000.
Taken from the Help to Buy Buyers Guide
For the first 5 years:
Equity Loan is interest-free
Pay a £1 monthly management fee by Direct Debit
From Year 6:
Pay the £1 monthly management fee
Pay a Monthly interest fee of 1.75% of the equity loan
Interest fees will rise each year in April by the Consumer Price Index, plus 2%
Continue to pay interest until you repay your loan in full
How to repay your equity loan?
When taking out an equity loan, you will agree to repay it in full, plus interest and administration fees.
You can consider a few options in year 6:
Continue to pay the interest rate along with your mortgage repayments. Remember every year the interest rate on the equity loan increases. Every year you will have to pay more.
Re-mortgage to pay off the equity loan. Your mortgage repayments are likely to increase.
Sell your home. Remember the equity loan is based on your property market value at the time of repayment. If the property market value has increased then the amount you pay back increases as well. It’s the same if the property value decreases then your equity loan decreases.
The advice given above are just suggestions, please seek professional independent financial services for professional advice.