Designed to ease the financial strain of buying your own home, the Help to Buy: Equity Loan scheme is an alternative to Shared Ownership in which the Government lends you up to 20% of the value of your new-build home, meaning you just need a 5% deposit and a 75% mortgage to get onto the property ladder.
The 20% loan you receive from the Government is interest-free for 5 years.
What is Help to Buy?
Designed as an alternative to the popular Shared Ownership scheme, the Help to Buy: Equity Loan scheme is ideal for those who can afford at least 80% of a property with a mortgage and a deposit, and who just need a small boost for the remainder of the property’s value.
Only available on selected new-build homes, the Government can provide an Equity Loan of up to 20% of the value of your property to help you get your foot on the property ladder. There is no interest to pay on this loan for the first five years, giving you time and money to pay back your loan at your own pace.
It’s worth noting that the Equity Loan will be a second charge on your property and will represent a percentage of the value of your property, so when you pay back the loan, you will pay it back as a percentage of the current market value of your home.
How does the Equity Loan scheme work?
Let’s say for example you’re looking to buy an eligible new-build home for £200,000, and in order to afford the property you apply for a 20% Equity Loan. That means your property purchase is split as follows:
– At least a 5% deposit (£10,000)
– A mortgage of at least 75% of the value of the home (£150,000)
– The remaining 20% as an Equity Loan (£40,000).
However, if your home is worth £220,000 when you sell it, you will pay back 20% of the new value (equivalent of £44,000). You can pay back the loan at any time, but please note you can only pay back a minimum of 10% at any given time.
If you have some or all of the loan outstanding after 5 years, you pay a small amount of interest on the outstanding value every month, although the loan must be paid back either when you sell your home or at the end of 25 years, whichever comes first.
You can find out more about the Equity Loan scheme here
Am I eligible for the Equity Loan scheme?
There are certain criteria which you must meet to qualify for the Help to Buy: Equity Loan scheme:
– You can be either a first-time buyer or a homeowner (but you need to have already sold your home)
– You need a conventional mortgage from a bank or building society, with a minimum deposit of 5% (subject to lender requirements).
– The home you want to buy must be a new-build with a maximum value of £600,000 or less.