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About Help to Buy

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About Help to Buy - What are shared equity / equity loans?

Shared equity schemes give you a loan that acts as part of the deposit on a property. You will still need to take out a mortgage on the remainder of the property price, but because the loan counts towards your deposit you may be able to take out a mortgage where you might otherwise struggle.

Legally, you own 100% of the property.

In the short term, shared equity can mean you'll be able to buy a house without paying a big deposit, although in the long term it could work out as a more expensive way of buying a home.

There is no interest charged on the equity loan in the first five years, but after that you pay a fee on the loan of 1.75%, rising each year by the retail price index (RPI) plus 1%.

After 25 years you will need to pay back the loan in full. As it is an ‘equity loan’, it is proportionate to the property value rather than being a fixed figure. Because of this, the amount you will have to repay will depend on the value of your property at the time.

There have been a number of Government backed shared equity schemes in the past (Firstbuy, Homebuy Direct), and the current Government backed equity loan scheme is called Help to Buy. More information about Help to Buy is available here.

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About Help to Buy How do I apply for a Help to Buy equity loan?

To apply for a Help to Buy equity loan you must contact the Help to Buy agent in your area. You must buy your home from a registered Help to Buy builder, and your local Help to Buy agent should have a list of registered builders for you to choose from.

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About Help to Buy – Can I sell my Help to Buy home?

Yes, the home will be in your name, which means you can sell it at any time. You’ll have to pay back the equity loan when you sell your home or at the end of your mortgage period - whichever comes first.

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About Help to Buy – What is the interest charge on a Help to Buy equity loan?

The Help to Buy equity loan is interest-free for 5 years. After that, you pay an annual fee of 1.75% on the amount of the outstanding loan. The fee will increase each year by inflation (Retail Price Index (RPI)) + 1%.

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About Help to Buy - How does Help to Buy equity loan work?

With a Help to Buy equity loan:

  • you’ll need to contribute at least 5% of the property price as a deposit

  • the government will give you a loan for up to 20% of the price

  • you’ll need a mortgage of up to 75% to cover the rest

Example

For a property worth £200,000

Amount

Percentage

Cash deposit

£10,000

5%

Equity loan

£40,000

20%

Your mortgage

£150,000

75%

If the home in the table above sold for £210,000, you’d get £168,000 (80%, from your mortgage and the cash deposit) and pay back £42,000 on the loan (20%). You’d need to pay off your mortgage with your share of the money.

You won’t be charged loan fees for the first 5 years of owning your home. In the 6th year, you’ll be charged a fee of 1.75% of the loan’s value. After this, the fee will increase every year. The increase is worked out by using the Retail Prices Index plus 1%.

Your Help to Buy agent will contact you before the fees start, to set up monthly payments with your bank. You’ll also be sent a statement about your loan each year. Fees don’t count towards paying back the equity loan.

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About Help to Buy – When do I pay back the equity loan?

You’ll 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.

You can also pay back some of your equity loan without selling your home. You can pay back either 10% or 20% or the total amount, so long as the loan is worth at least 10% of the value of your home.

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About Help to Buy – Who is eligible for Help to Buy equity loans?

To be eligible for a Help to Buy equity loan you must not already own another home.  In order to buy through this scheme, you must either be a first time buyer or have sold your previous property. You cannot be looking to buy a home on sale for more than £600,000 and you must be able to prove that you can afford the mortgage payments and associated outgoings on the home you choose to buy. There is a standard affordability calculator check provided by the Homes and Communities Agency which will determine what you can afford.

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Whats the difference between Shared Ownership and Help to Buy?

There are significant differences between Help to Buy Equity Loans and shared ownership, but generally, with Help to Buy Equity Loans you purchase ALL of a property and legally own ALL the property. However, the key point is that the deposit you put down includes a generally sizable equity loan making up the difference between the mortgage and purchase price (i.e. to a large extent, this shared equity loan is your deposit).

In contrast, shared ownership schemes are usually undertaken whereby you only own a specific share as a lease on a shared ownership property (normally owned by a housing association), and you can only achieve 100% ownership by 'staircasing' up from shares of 25%+ to full ownership.

Help to Buy is generally provided by private developers and shared ownership by housing associations, but there are some housing associations with allocations for the Help to buy equity loan scheme.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Share to Buy Ltd is authorised and regulated by the Financial Conduct Authority. FCA register number 306800. You can find more detail on our status in our Initial Disclosure Document [109k] and Terms of Business.

For further information, contact us or write to: Share to Buy, PO Box 11998, Sudbury CO10 3BS. Registered in England and Wales no: 04909788.