What is the help to buy, equity loan scheme?

September, 2022

Help to Buy: Equity Loan is a government scheme for first-time buyers. It provides a loan, called an equity loan, that you put towards the cost of buying a new build.

Help to Buy aims to help first-time buyers to get on the property ladder. If you’re eligible for an equity loan, you can borrow up to 20% (40% if you’re in London) of the market value of a new build.

During the term of the equity loan you only pay interest on the amount you borrowed. You do not pay off any of the loan itself. But you can choose to pay all or part of it off at any time. If you sell your home, you will need to pay off all of your equity loan.

You can only apply for an equity loan if you reserve a new build from any of the homebuilders registered with the Help to Buy scheme (registered homebuilders).

The amount you pay for a home depends on where in England you buy it.

The maximum property price is the full purchase price. You cannot change or negotiate this price.

Your homebuilder will be able to confirm if the home you want to buy is within the price range.

The equity loan, the deposit you have saved, and your repayment mortgage cover the total cost of buying your newly built home.

You can repay all or part of your equity loan at any time. Any part payment you choose to make on top of a monthly interest payment must be at least 10% of the market value of your home at the time. Part payments will reduce the amount you owe on the equity loan.

You must repay your equity loan in full:

  • at the end of the equity loan term
  • when you pay off your repayment mortgage
  • when you sell your home
  • if you do not comply with the terms set out in the equity loan contract and we ask you to repay the loan in full.

When you take out an equity loan, you do not pay interest for the first 5 years. When you start to pay interest in year 6, it is on the amount you borrowed.

The monthly interest payments you make do not pay off your equity loan. You do not pay monthly equity loan repayments to reduce the amount of equity loan you have borrowed.

Your equity loan is secured against your home by a legal charge in the same way a repayment mortgage is.

How much can I borrow?

The percentage you borrow is based on the market value of your new home when you buy it.

When you repay your loan in full or in part, the amount you pay back is worked out as a percentage of the market value, at the time you choose to repay.

If the market value of your home rises, so does the amount you owe on your equity loan. And if the value of your home falls, the amount you owe on your equity loan falls too.

Your home may be repossessed if you do not keep up repayments on your repayment mortgage, equity loan or other loans secured against it. Consider seeking independent financial advice before making any financial decisions.

Who can apply for a Help to Buy: Equity Loan?

  • If you are 18 or over.
  • A first-time buyer.
  • Able to afford the fees and interest payments.

You cannot get the equity loan if you have ever:

  • Owned a home or residential land in the UK or abroad.
  • Had any form of sharia mortgage finance.

You can apply on your own or with other people.

All applicants must meet the eligibility criteria.

For more information on the Equity Loan Scheme click here.

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