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

The new scheme has different rules to the old Help to Buy: 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.

To put it simply, 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.

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?

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

If you would like any more information about Help to Buy, or would like some more general advice, please call us on: 01793 611400 or email us: [email protected]