The new Help to Buy - Equity Loan scheme is open to first-time buyers, it will only be available for two-years from 1 April 2021 and will end on 31 March 2023.
You can apply for the new scheme now.
A Help to Buy Equity Loan is a government scheme which can help first time home buyers get a property with just a 5% deposit.
There are restrictions.
The home you buy must:
● be a new build
● have a purchase price of up to £600,000 in England (or £300,000 in Wales)
● be the only one you own
● not be sub-let or rented out after you buy it
How it works
With a Help to Buy Equity Loan the government lends you up to 20% (40% if you’re in London) of the cost of your newly built home.
You pay a deposit of 5% or more and arrange a mortgage of 25% or more to make up the rest. You won’t be charged interest on the 20% loan for the first five years of owning your home.
Paying back the equity loan
For the first five years:
● the equity loan is interest free
● you pay a £1 monthly management fee by Direct Debit
From year 6
● you continue to pay the £1 monthly management fee
● you start to pay a monthly interest fee of 1.75% of the equity loan
● your interest fee will rise each year in April by the Retail Price Index (RPI) plus 1% until you repay your loan
You only need to repay the equity loan in full when you:
● pay off your mortgage
● sell your home
● come to the end of your equity loan term.
But you can choose to pay off your equity loan any time, in full or in 10% chunks before the end of the loan period. The amount you borrow is a percentage of the value of your new home. And the amount you pay back is the same percentage of the value of your home.
This means, if the value of your home rises, so does the amount you owe on your equity loan. It works both ways, so if the value of your home falls, the amount you owe on your loan falls too.
Example: for a home with a £200,000 price tag (outside of London)
Repaying a 20% equity loan where the home has increased in value.
● buy your home for £200,000
● sell your home for £210,000
● Repay your 20% equity loan, £42,000
● Pay off your 75% mortgage, £150,000
Your home may be repossessed if you do not keep up repayments on your mortgage.