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

Are you considering using the Help to Buy Equity Loan scheme to buy a home? Then it’s essential you know about some major changes happening to the scheme.

The current Help to Buy Equity Loan scheme runs until 31 March 2021. Applications for the current Help to Buy Equity Loan scheme closed on 15 December 2020.

The deadline for legal completion for homes being purchased under the scheme is the 31 May 2021. The so-called qualification deadline – the date by which construction of the property must have been completed – is also the 31 May 2021. 

The new Help to Buy Equity Loan scheme will run from April 2021 to March 2023. Applications are open for this scheme from 16 December 2020.

The new scheme also has different rules. You may find there's a dramatic impact on the value of property you’ll be able to buy. Plus, it could even mean you’re no longer eligible to use the scheme.

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.

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.
  • 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.
  • The current scheme is open to first time buyers and existing home owners. It’s also only available on new build homes, up to a maximum purchase price of £600,000. For more information on the scheme, please click here.

What’s different about the new Help to Buy Equity Loan scheme?

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 will be dramatically cut in most areas. The caps have been set at 1.5 times the average first time buyer price in each region (as of Autumn 2018).

What are the regional price caps?

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

What should I do if I want to use the scheme?

Do you want to take advantage of the Help to Buy Equity Loan scheme and you’re not a first time buyer? Then you'll need to act quickly as you won’t be able to use the scheme from April 2021.

Likewise, if you’re hoping to buy a property that is priced above the regional price caps, then it’s important to act now, otherwise you could miss out.

What are my other options?

While Help to Buy has been popular with first time buyers, it’s not the only route available if you have a small deposit.

  • 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. However, as James explains above, you may struggle to get a high loan to value mortgage on a new build property.
  • 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. Find out more about Shared Ownership here.
  • 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. Find out more about guarantor mortgages here.

For more information about the Help to Buy Equity Loan, feel free to get in touch with our friendly team of mortgage advisers. 

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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