The original Help to Buy Equity Loan scheme is being phased out and replaced by a successor. This is very similar to the original but has some important differences. Here is a quick guide to what you need to know.
First-time buyers can get a 20% interest-free equity loan on new-build homes
Probably the single biggest difference between the old Help to Buy Equity Loan scheme and the new one is that the new one is only available to first-time buyers. Probably the second-biggest difference between the old Help to Buy Equity Loan scheme and the new one is that the new scheme has price limits set by region.
London, unsurprisingly, has the highest limit (currently £600K). The North East has the lowest (currently £186.1K). Buyers in London can also get a loan of up to 40%. For everywhere else it’s up to 20%.
For the first five years, you only pay a monthly administration fee of £1. After this, you pay this plus interest. Currently, the interest is set at 1.75% but this is set to be increased each year by the Consumer Price Index (CPI) plus 2%. Alternatively, you can pay off the equity loan after five years and pay nothing except the administration fees (so £60).
Couples must both be first-time buyers
If either one of you had owned a property before then you would need to look at the Help to Buy Mortgage Guarantee scheme. This is available to onward movers. It’s also available on established property.
The property must be bought as your main home
You actually have to live in the property until you have repaid your loan in full. You can, however, take in roommates/lodgers. In fact, the government’s Rent a Room scheme allows you to earn up to £7,500 per year from letting out furnished accommodation in your home. You would, however, need to clear this with your mortgage lender and insurer(s).
You must have a minimum deposit of 5%
The government itself does not, currently, have any rules about how you put together this deposit. Lender’s by contrast may want to know the exact source of the funds. In particular, they may have rules about how much of your deposit can be made up of gifted money.
You can combine it with the Lifetime ISA
It’s absolutely possible to use the Lifetime ISA, with its 25% bonus, to pay the deposit on a property bought with the Help to Buy Equity Loan scheme.
You must use a repayment mortgage
This probably isn’t going to be an issue for most, if any buyers, but, for completeness, it’s worth mentioning.
It is an equity loan, not a standard repayment loan
In simple terms, when you use the Help to Buy Equity Loan scheme, the government becomes a co-owner of your property. Their stake is a percentage rather than a figure. This means that the amount you repay depends on the market value of your home at the time you make the repayment.
Given that home prices tend to go up over time, this means that the value of the government’s stake in your home will probably increase over the initial five years. If you do not pay back the full equity loan then, it will probably go on increasing.
Minimum repayments are 10% of market value
On the one hand, it is understandable that the government has put a floor on repayments. It will want to minimize the administration involved in the scheme. On the other hand, it does mean that buyers either have to find fairly hefty sums of money to repay the equity loan or keep paying interest without reducing the amount of the loan.
If you’re interested in the Help to Buy Equity Loan scheme, please contact us for more information and help.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
