Help to Buy 101: Help to Buy equity loan explained

Help to Buy 101 | Help to Buy explained

Potential buyers are often confused by the home buying process, especially when you add schemes such as Help to Buy to the equation. However, the whole process is likely much simpler that you think!

So, take a breath and stop fretting. Read our Help to Buy 101 and find out all you need to know about the Help to Buy equity loan.

Help to Buy 101:

Help to Buy is a government backed scheme which aims to help first time buyers get a foot onto the property ladder. The Help to Buy equity loan enables purchasers to buy a new build home with the help of an equity loan, also known as shared equity.

The government provides a loan of up to 20% of the home, so the purchaser only needs to raise a 5% deposit, with a 75% mortgage making up the rest. As the equity loan counts towards your deposit, you may be able to take out a mortgage where you might otherwise struggle. This also means that you don’t have to take out a costly 95% mortgage.

London Help to Buy:

The concept of London Help to Buy has caused some confusion amongst buyers since its launch in February 2016, however, the process is almost identical to the normal Help to Buy equity loan!

The only difference is that, to reflect the current property prices in the capital, the government increased the upper limit for the equity loan from 20% to 40%, enabling buyers to get a foot on the property ladder within Greater London. The buyer is still only required to raise a 5% deposit, with a 55% mortgage to make up the rest.

Eligibility:

The Help to Buy equity loan is a government backed scheme which helps buyers who can’t quite afford to buy a property outright. Because of this, there are some specific eligibility criteria that you need to meet:

  • You must be at least 18 years old.
  • You have at least 5% deposit of the full purchase price.
  • You must be able take out a mortgage for 25% or more of the full purchase price.
  • You are able to prove that you can afford the mortgage repayments and other outgoings on the home you wish to buy.
  • You do not already own a home, or you will have sold your current property before or at the point of completion on your Help to Buy home.
Things to note:
  • The Help to Buy equity loan is only available on new build properties.
  • You cannot buy a home that is on the market for more than £600,000.
  • You may need to pay stamp duty land tax when you purchase.
Repayments:

The Help to Buy equity loan is interest free for five years – you are only required to pay a monthly management charge of £1 during this time. After the five years, the purchaser pays an annual fee of 1.75% on the amount of the outstanding loan; this fee will increase each year with inflation.

You will have to pay back the Help to Buy equity loan when you sell your home or at the end of your mortgage period – whichever comes first. However, you can also pay back some of the equity loan without selling your home; you can pay back either 10% or 20% of the total amount, so long as the loan is worth at least 10% of the value of your home.

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And that’s it! If you think that the Help to Buy equity loan is the home buying option for you, then why not take a look at our available properties; you can use our property filters to find your ideal home, basing your search on key criteria including location, number of bedrooms and deposit amount.

If you’re interested in finding out more about the Help to Buy scheme, you can also check out our FAQs section.