Help to Buy logoThe Help to Buy scheme is designed to do just that – help hard-working people like you take steps to buy your own home.

Whether you want to get onto the housing ladder or move up it, a Help to Buy equity loan makes it possible to buy a new-build home priced up to £600,000 with as little as a 5% deposit.

How does it work?

With the Help to Buy Equity Loan scheme the Government lends you up to 20% of the cost of your new-build home, so you’ll only need a minimum 5% cash deposit and a 75% mortgage to make up the rest. This equity loan is funded by the Homes and Communities Agency (HCA).

You won’t be charged interest on the 20% loan for the first five years of owning your home. After five years the equity loan will be subject to a fee of 1.75% per annum on the outstanding amount. This fee will increase each year by Retail Price Index (RPI) plus 1%. We always recommend that you seek financial advice to determine how much your monthly payments will be at this point.
When you sell your property, or choose to repay some or all of the equity loan, the amount you have to pay back will be based on the market value of your property at that time.

So, if you wanted to buy a property worth £250,000 the Help to Buy Equity Loan would break down like this:

  • A £50,000 loan from the government
  • A £12,500 deposit put down by you
  • A £187,500 mortgage from a mortgage lender

The Help to Buy Equity Loan is interest-free for five years. After that, the purchaser pays an annual fee of 1.75% on the amount of the outstanding loan. The fee will increase each year by inflation, which is the Retail Price Index (RPI) + 1%.

The purchaser can start repaying the equity loan after they’ve owned the home for a year, but they’ll need to be able to pay a minimum of 10% of the property value at the time of repayment.
When they want to sell their home, they’ll need to repay the percentage equity loan that is still outstanding. So, for example, if they originally bought 80% of the property and they hadn’t repaid any of the equity loan, their repayment on selling would be 20% of the market value at the time when they sell.

For example, if you take a 20% equity loan of £50,000 to buy a property worth £250,00 and when you come to sell the property is worth £300,000, you repay £50,000. This is 20% of the new value of your home, not the amount you borrowed. If the property had dropped in value, you’d pay less than you borrowed.

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