What is the Help-to-Buy Equity Loan and how does it work?
In a nutshell, the Help to Buy Equity Loan is a government backed scheme targeted specifically at first time buyers. It is not a discount scheme or a price reduction. The purchase price of your new home will be the same whether you buy using the equity loan scheme or not.
With the Help-to-Buy Equity Loan in place you can borrow up to 20% of the purchase price of a new build home. You then pay a deposit of 5% of the purchase price of your new home at exchange of contracts and then arrange a repayment mortgage of at least 25% of the purchase price of your new home.
You won’t be charged interest on the equity loan for the first 5 years, however, interest fees start at 1.75% and rise each year in April by the Consumer Prices Index (CPI) plus 2% and you will start paying these fees from year 6 onwards. You will also need to pay a monthly management fee of £1 for the life of the equity loan.
You must repay the equity loan when you pay off your repayment mortgage, sell your home or reach
the end of your loan term, which is normally 25 years. You can also pay off your equity loan in full any time
before then or make part payments. Your first part repayment will need to be at least 10% of what your home is worth at that time. It's worth therefore noting, that the total equity loan amount you repay is linked to the value of your home at the point of repayment, and not the amount you originally borrowed.
So to recap...
- You will only need a minimum 5% deposit
- The Government will lend you up to 20% of the value of your property through an equity loan
- You will need a repayment mortgage of at least 25% up to 75% of the value of the home
- In the first 5 years, the equity loan is interest fee and you will pay a £1 monthly management fee
- From year 6 you will start paying the monthly interest free of 1.75%
- Interest fees will rise yearly in April buy the CPI, plus 2%
- The total equity loan amount you repay is linked to the value of your home at the point of repayment
- You will own 100% of your new home