Help to Buy Equity Loan FAQs
Q. Who is it for?
A. Those who wish to buy a new build house and are struggling to afford one in their area, perhaps due to their income and the amount of deposit needed to secure the level of mortgage required.
This could be first time buyers who are trying to get onto the property ladder, or ‘second-steppers’, needing to move up the ladder to a bigger home. These loans are not available for buy-to-let landlords or second homeowners.
Q. Who is eligible – and for what types of property?
A. Existing homeowners and first time buyers
- Buyers with a minimum deposit of 5% of the purchase price
- Buyers who are borrowing from a participating lender
- Available in England on new build properties worth up to £600,000, up to £400,000 in Scotland and £300,000 for the version in Wales
- Available on residential properties
- This must be your only property
Q. How does it work?
A. You'll need to put down a deposit of at least 5% of the property price. The government will give you an equity loan for up to 20%, interest-free, for the first five years, and you'll need a mortgage of 75% to cover the rest.
As a result of helping you, the government is entitled to its money back, plus a share in the future sale proceeds equal to the percentage contribution it made to help with your purchase.
This type of loan is known as a ‘shared equity’ mortgage.
If your home sold for £250,000, making a £50,000 ‘profit’, you’d get £200,000 (£150,000 from your mortgage, £10,000 cash deposit back and £40,000 as 80% share of the ‘profit’) and pay back £50,000 to the government (the £40,000 equity loan, plus an extra £10,000 as 20% share of the ‘profit’). You’d need to pay off your mortgage with your share of the money.
Q. When will I have to pay back the equity loan?
A. The home will be in your name, which means you can sell it at any time. However, you will have to pay back the equity loan when you sell your home or at the end of your mortgage term – whichever comes first. Please see above an example of how much you might have to pay. You can also pay back the equity loan without selling your home. If you do this the minimum repayment is 10% of the current value of the property at the time of repayment.
There is additional useful information on the Money Advice Service website.
Q. Are there any fees for the equity loan?
A. You will not be charged loan fees for the first five years of owning your home, but, in the 6th year, you will be charged a fee of 1.75% of the loan’s value. After this, the fee will increase every year in line with inflation. The annual increase in the fees is worked out by using the Retail Prices Index (RPI) plus 1%.
For instance, if the RPI is 5% at the end of Year 6 of your Equity Loan, the fee will increase by 6% from 1.75% in Year 6 to 1.86% in Year 7 (which is 1.75% + (1.75% x 6%) = 1.86%).
Interest is not charged on the version in Scotland.
Your mortgage adviser can provide you with a more detailed illustration when they help you with finding the right mortgage.
A government-appointed Help to Buy agent will contact you before the fees start, to set up monthly payments with your bank. You will also be sent a statement about your equity loan each year.
Q. What are the interest rates on the mortgage loan?
A. Lenders offer more competitive rates to borrowers with bigger deposits as they carry less risk. This scheme means that they are only lending 75% of the property value rather than 95% which means you will benefit from cheaper rates of interest than you usually would.
Q. How long is it available for?
A. The English scheme will end in March 2021 and will be replaced with a new scheme. The Scotland and Wales schemes are set to end in 2016.
To learn more about the other Help to Buy schemes available, see our Help to Buy Explained article.
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.