A Help to Buy: Equity Loan or “Help to Buy”, as they are more commonly known, is a Government backed scheme specifically designed to help First Time Buyers. Here we will be discussing homes purchased in England, there are separate schemes available in Scotland and Wales. There are also 3 different ‘Help to Buy agents’ depending on where you are in England. You will need to register with the specific Help to Buy agent in your desired area before you can put in an offer on a property, details can be found here. The following details and information are also specifically for the new scheme running from April 1st 2021 – March 2023.
Help to Buy mortgages are for newly built properties and must be purchased from a homebuilder who is registered with the scheme. You can borrow a minimum 5% and up to a maximum 20% (40% if the property is in London) of the price of a new-build home.
The new Help to Buy scheme has defined maximum property price limits, these are:
North East
£186,100
North West
£224,400
Yorkshire and the Humber
£228,100
East Midlands
£261,900
West Midlands
£255,600
East of England
£407,400
London
£600,000
South East
£437,600
South West
£349,000
The Help to Buy purchase is broken into three parts. The amount of deposit you have saved (let’s say 5%), plus the Government loan (Let’s say 20%) and your repayment mortgage amount to cover the remaining 75% in this example. The Government equity loan is secured against the property in the same way a mortgage is. You do not pay any interest on the Government portion of your loan for the first 5 years, you start to pay interest from year 6, on the amount you borrowed. Interest payments do not reduce the amount of loan originally borrowed.
You can repay all or part of your Government loan at any time (subject to a 10% minimum, if part repayment). You must repay the loan in full if you:
· Sell your home
· Pay off the repayment mortgage
· Reach the end of the equity loan term
· You do not comply with the terms of your contract
The amount you repay will depend on your house value at the time of repayment. The loan portion was worked out on a percentage of the property value at purchase and that same percentage property value will be used when redeeming, therefore you may pay back more than you originally borrowed.
For example, purchase a home using the scheme with a property value of £200,000. Borrowed 20% (£40,000) using the Help to Buy: Equity Loan. When you decide to sell and move say 7 years later your home is now worth £250,000, therefore you would need to repay £50,000, this figure is in addition to any interest payments already paid since the start of year 6 in this scenario.
For the remaining 75% a Help to Buy mortgage will need to be arranged and these are extremely varied, and a solution can be found to meet most circumstances just like a conventional mortgage.
If you have any further queries regarding the scheme itself, a really useful FAQ’s section can be found on the Government Help to Buy: Equity Loan website here.
If you need any further help or advice regarding Help to Buy mortgages or other First Time Buyer schemes, please do get in touch so we can explore your options with you.
Your home may be repossessed if you do not keep up repayments on your repayment mortgage, equity loan or other loans secured against it.
