The government’s Help to Buy Scheme is divided into 2 sub-schemes known as the ‘Equity Loan Scheme’ and the ‘Mortgage Guarantee Scheme’, specially designed to help those with small deposits enter the property market. As of December 2016 the Mortgage Guarantee Scheme is no longer available and has been permanently withdrawn, therefore this page will only focus on the remaining Equity Loan Help to Buy Scheme.
If you are sure you can manage a mortgage, but you can’t find a property you can afford, or you are struggling to gather a deposit large enough that lenders currently require, then the Government’s Help to Buy Scheme could be the answer.
If you qualify, then the Help to Buy Equity Loan could lend you up to 20% of the cost of a newly built home (40% within Greater London), and only 5% of the purchase price would be your deposit contribution.
If the purchase price of a newly built home is £200,000, you would need to have a personal deposit of 5% which would amount to £10,000. The government will provide you with an equity loan of 20% of the purchase price amounting to £40,000, which will be interest free for the first 5 years. Your personal deposit of £10,000 (5%) combined with the governments £40,000 (20%) would total £50,000 representing 25% of the £200,000 newly built home.
You would then need to source and secure a mortgage for the remaining 75% or £150,000. As this represents a 75% loan to value ratio, there are plenty of competitive rates available from lenders out there, but it’s worth bearing in mind that the mortgage application process and affordability assessments are exactly the same as any other standard mortgage basis.
Help to Buy Scheme variations for Properties within Greater London
Due to the disparity in home prices of those in London compared to the rest of the UK, the government has recognised and introduced an increase to the upper limit of the amount of equity loan it will provide to assist the purchase of new homes within Greater London. From Feb 2016, those who qualify and wish to purchase a new home within Greater London will receive an equity loan of 40% of the purchase price, 20% will be available to applicants purchasing anywhere else.
Who is eligible and criteria
- First Time Buyers
- Existing home owners
- Property must be a new build with a maximum purchase price of £600,000
- Not permitted to Sub-let
- Must not own any other property
- Won’t be able to enter any deal using your old own home
- Scheme only available in England (not available in wales or N.Ireland, but they have their own similar schemes)
When do I start to pay back the Equity Loan and how much does it cost ?
Unlike a loan from the Bank, the Help to Buy Equity Loan is tied to the value of your property, so if the value of your property rises so does the value of your loan, and if it falls, so does the amount outstanding on your loan. The equity loan is completely free of interest charges and fees for the first 5 years, and from year six the annual interest rate is a very low 1.75%, rising by an additional 1% annually from thereon, encouraging you to pay back the loan sooner rather than later. you are permitted to pay back any amount of the equity loan back at any time without incurring early repayment charges.
If the purchase price of a newly built home is £200,000, the government will provide you with an equity loan of 20% of the purchase price amounting to £40,000. After the initial interest free 5 years, the subsequent interest rates will be charged in relation to your property’s current value. The government’s stake in your property will always be 20% as this is the percentage that they put up originally in the form of a 20% equity loan, therefore if your property after 5 years is still worth £200,000, then interest will be charged on £40,000, which is 20% of £200,000. If after 5 years your property value rises and is worth £215,000, then interest will be charged on £44,000, which is 20% of £215,000. If however your property value falls to £190,000, then interest will be charged £38,000, which is 20% of £190,000 reflecting the fall in property value.
What happens if I want to sell my house at any time ?
There are no restrictions in selling your house at any time when buying a new home under the Help to Buy Equity Loan Scheme. You just have to remember, that you are required to pay back any outstanding amounts of equity loan still outstanding, and the percentage outstanding will be connected to the rise in value of your home.
How I can Help
I can provide you with concise and comprehensive advice and assistance regarding all aspects of your Help to Buy mortgage needs from initial advice to application stage and all the way to completion. Having a mortgage professional on hand to assist you every step of the process can save you time, effort and money, easing the stress of your mortgage process.
Please contact me today for an informal and friendly chat to discuss your needs. All initial advice is completely free and confidential. You can contact me using the “contact us” form at the top right of this Page and i’ll get back to you as soon as possible, or alternatively you can contact me via my details below, or CLICK HERE
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