Help to Buy - Equity Loan Scheme
The Help to Buy - Equity Loan Scheme explained.
- What is Help to Buy?
The Help to Buy Scheme is a UK Government initiative to help ALL home buyers (not just first time buyers) who wish to buy a new build home. The Government will provide up to a maximum of 20% of the purchase price via an equity loan, which is interest free for the first 5 years.
Home Buyers must provide a deposit of at least 5% of the purchase price, which combined with the mortgage must cover 80% of the purchase price. The Government provides the remaining balance up to 80% of the purchase price, as an equity loan.
The Government, by providing the equity loan, is entitled to a share of the future sale amount equal to the percentage contribution it assisted you with.
- Who is eligible:
All buyers of participating new build homes
Buyers able to raise a 5% deposit and secure a 75% mortgage
Mortgage must be repayment method, not interest only
Maximum purchase price must not exceed £600,000
Property must be your only residence (it can't be your second home or buy to let investment)
Cannot rent out existing home to buy another with Help to Buy
- Where to find Help to Buy Homes
Only available to new build properties in England. Not all builders are registered in the Scheme and not all developments will necessarily be included. Builders are currently submitting their eligible properties and these can be searched via the HelpToBuy.com search facility.
Your minimum total contribution must be 80% of full purchase price, ie your cash deposit minimum of 5%, plus your bank mortgage 75%, totaling 80% of purchase price. See the HelpToBuy.com Equity Loan Calculator
Please be aware that your combined contribution cannot exceed 90% of the purchase price as you would be deemed able to afford a loan without the need of the Help to Buy scheme.
- How much can I borrow?
Usually lending is based on a multiple of 4.5 times gross household income, ie annual income before tax is deducted
Your monthly costs (mortgage, service charge, fees) should not exceed 45% of your net monthly disposable income (ie income left after tax)
You cannot take a smaller mortgage if your income shows you can afford to maintain a higher mortgage. This is to ensure the Help to Buy scheme reaches as many households as possible.
- Government Equity Loan
The Government's equity loan will be secured against your property as a second charge registered at the Land Registry. This means you will be unable to sell your property until the Government's equity loan is repaid.
The loan is a fixed percentage of the purchase price, eg if you buy a £100,000 property with a 5% cash deposit, £75,000 bank loan and £20,000 equity loan and you decide to sell the property 10 years later at, say, £150,000, the Government's share will be 20% of £150,000, ie £30,000.
You can repay the equity loan at the prevailing market rates, known as "staircasing".
If property prices fall the equity loan percentage is the same, but obviously the monetary amount would fall. So if you buy a £100,000 property with a 5% cash deposit, £75,000 bank loan and £20,000 equity loan and you decide to sell the property 10 years later after a 50% fall, at £50,000, the amount of equity Loan to repay would be £10,000
- Example for a £200,000 house purchase
- Which mortgage provider?
Mortgages must be provided by qualified lending institutions (authorised under the Financial Services and Markets Act 2000). In practice this is most high streets banks and building societies.
- Equity Loan fees
After the initial 5 year interest free period on the equity loan, the Government will levy a fee in year 6 of 1.75% of the amount of the equity loan, this will rise in subsequent years by the rate of inflation (RPI) + 1%.
For example if inflation is 5% in year 7 the annual fee would rise by 6% and become 1.87%.
Fee is payable to the Government annually through the local Homebuy Agent.
- Time scale for application process
Find a suitable property.
Obtain your personal credit score.
Find how much you can borrow, usually around 4.5 times household income.
Get an Agreement in Principle from your mortgage lender.
Contact your Local Homebuy Agent - view list.
- HomeBuy Agents
HomeBuy Agents are Government approved representatives who will carry out an assessment of your application covering such issues as affordability and eligibility. They will give approval to your solicitor to proceed with purchase (after completion they will also handle the administration of any annual fees and the Government's equity loan). List of Homebuy Agents
- HomeBuy Fact Sheet
View Full Buyers Guide. download pdf file