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The Help to Buy Equity Loan: here’s everything you need to know

Are you considering using the Help to Buy Equity Loan scheme to buy a home? If you are, it’s essential you know everything you can about the scheme – before you buy your first home.

The new Help to Buy Equity Loan scheme will run from April 2021 to March 2023. Applications opened for this scheme on 16 December 2020. If you would like to apply for a Help to Buy Equity Loan Scheme, you can apply here.

What are Help to Buy Equity Loans?

Launched by the government in 2013, Help to Buy Equity Loans are aimed at helping those who are struggling to get on the property ladder. There are different Equity Loan schemes for England, Greater London, Wales and Scotland, and they all vary slightly.

What you need to know about the Help to Buy Equity Loan scheme

In a nutshell, with the Help to Buy Equity Loan scheme:

  • The government will lend you up to 20% of the cost of your new build home. This increases to up to 40% of the cost if the property is in London. This is called an equity loan.
  • You’ll need to save a minimum of 5% of the purchase price as a deposit, and you can use contributions from your Help to Buy ISA or Lifetime ISA to pay this. The remaining 75% comes from a specialist Help to Buy mortgage product.
  • Only first time buyers will be able to use the new Help to Buy Equity Loan scheme.
  • New regional price caps will be introduced. As a result, the maximum value of homes that can be bought with the scheme's help vary depending on the region you’re hoping to buy in.
  • As you’ll have a larger deposit, you won’t need to raise as much of a mortgage. This means your initial mortgage payments will be lower. It should also help with affordability calculations when you apply for your mortgage.
  • The equity loan is interest-free for the first five years, and you don’t need to make any repayments on it during that time.

What are the regional price caps?

The Help to Buy Equity Loan Scheme introduced regional price caps which restricts the purchase of a property in a region above a certain amount. The price caps can be seen below:

Region Price Cap
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

How to buy a home without using the Help to Buy Equity Loan scheme

While Help to Buy has been popular with first time buyers, it’s not the only route available if you have a small deposit. Here’s a few options if the Help to Buy Equity Loan scheme doesn’t seem like a good fit for you:

  • 95% mortgages: The average rates on mortgages that require just a 5% deposit have reduced significantly in recent years. This has made them considerably cheaper. And unlike with the Help to Buy Equity Loan scheme, you won’t be restricted to new build properties.
  • Shared Ownership: Also known as ‘part buy, part rent’, this scheme allows you to buy a share of a property and pay rent on the rest. And as you'll only need a mortgage for the share you’re purchasing, you'll need a much smaller deposit than if you were buying the home outright.
  • Guarantor mortgages: This is when a parent or close family member uses their own property or savings as security against your loan. This means lenders may accept a smaller deposit than usual and sometimes they won’t require any deposit at all.

If you’d like more information on the Help to Buy Equity Loan scheme, or just want to discuss your options, we’re always happy to help. Feel free to get in touch with our team here.

Because we play by the book we want to tell you that…

Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.

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