The Help to Buy: Equity Loan Scheme was set up by the Government to help first time buyers, or existing homeowners who want to move house, but are struggling to save a large enough deposit. You’ll need to be purchasing a new-build property costing up to £600,000 to access the scheme.
If this sounds like you, read on for more information on the scheme and how it may work for you.
What is the Help to Buy: Equity Loan Scheme?
When you take out a mortgage, you’ll provide a deposit that contributes to the purchase price, and your mortgage provider will lend you the rest.
Through the Help to Buy: Equity Loan Scheme, you can provide a deposit of a minimum of 5% and borrow up to a further 20% to boost your deposit. You’ll then take a mortgage from a mortgage provider for the rest of the purchase price of up to 75%.
Do I pay it back?
The money from the scheme that boosted your deposit is a loan. You don’t have to repay it until the mortgage is fully repaid or until you sell your house, but you can choose to pay it back at any time if you want to repay it sooner.
As the loan is an equity loan, the Government has essentially bought a share in your property. If you borrowed 20% of your property purchase price through the scheme, they own 20% of your property. This means when you repay the loan, you’ll repay the original loan amount plus a proportion of any increase in the value of your property. For example, if your equity loan is £20,000 and your property value has increased by 10%, you’ll repay £22,000.
Do I have to pay it all back at once?
If you want to pay back some of the loan without repaying it in full, you’ll need to make a payment of a minimum of 10% of your home’s market value.
Will I be charged interest?
You won’t be charged interest on the equity loan during the first five years. Interest will apply during the sixth year of 1.75%. From the seventh year, this 1.75% rises by RPI plus one percentage every year.
Am I eligible?
You should speak to a mortgage adviser for more detailed information on whether you’re eligible for the scheme. It’s available to both first time buyers and existing homeowners wanting to move house.
Some restrictions on eligibility include:
- At the time of purchasing your home with the equity loan, you must not own another property
- You can’t sub-let the home you have used the equity loan to buy
- You won’t be able to enter into a part exchange deal on the home you are selling
Can I get a 95% mortgage instead?
95% mortgages are available and could be an alternative to the Help to Buy: Equity Loan Scheme if you can only provide a 5% deposit. So, why would you boost your deposit through the scheme if you can just get a 95% mortgage?
Mortgage interest rates and product fees usually reflect the risk to the lender, which means the less deposit you have to put down, the higher the interest rate will be on your mortgage. When you use the Help to Buy: Equity Loan scheme, the mortgage lender is providing a 75% mortgage, which carries a lower risk than providing a 95% mortgage, so you’ll be able to access mortgages with lower interest rates.
Find out more about our Mortgage Advice service in Middlesbrough