Help to Buy Equity Loan: What You Need to Know

by | Jan 26, 2021

Have you heard about the Help to Buy: Equity Loan scheme?
If you have, there’s some important information about upcoming changes that you need to be aware of. If you haven’t heard of it before and you’re thinking of becoming a first-time buyer, you could benefit from learning about it.

The Help to Buy: Equity Loan scheme isn’t a new thing. The old scheme was launched in 2013 and is due to end in March 2021. However, applications ended in December 2020. This was to allow buyers to reach the legal completion of the purchase before the funding ends on 31st March.

Replacing the old scheme is the Help to Buy: Equity Loan scheme (2021-2023). Starting on 1st April 2021, this new scheme is accepting applications from buyers who will be moving into their property from April onwards. The aim of the Help to Buy scheme is to help buyers get onto the property ladder, with them only needing a 5% deposit.

In summary, here are some important facts about the Help to Buy: Equity scheme:

  • Applicable for new-build homes only
  • Only available to first-time buyers
  • Buyers can borrow up to 20% of the full purchase price of the new-build home with a minimum of 5%. The maximum goes up to 40% for London properties
  • The house must be bought from a home builder that is registered for Help to Buy: Equity loan
  • There are regional price caps on the maximum value of eligible homes
  • Interest is not paid on the equity loan for the first 5 years

What are the regional price caps for Help to Buy?

There are different price caps for regions across the UK as follows:

How will the Help to Buy: Equity Loan affect how much I have to pay?

The equity loan gives you up to 20% of your new home’s value and requires a 5% deposit from you. This will leave you with a 75% repayment mortgage instead of the typical 95% many home buyers are left with. The following infographic gives you an example:


How is the Help to Buy: Equity Loan Repaid?

When deciding whether to take out any loan, it’s also important to consider the full cost of borrowing. The same goes for the Help to Buy: Equity Loan. Here is a little break-down for you:

In the first 5 years:

  • The equity loan is interest-free
  • A £1/month management fee is payable by direct debit

From year 6 onwards:

  • £1/month management fee continues to be payable
  • Monthly interest fee of 1.75% of the equity loan is paid
  • Each year in April the interest fee will rise as per the Consumer Price Index (CPI), plus 2%
  • Interest continues to be paid until the loan is paid in full

You will be required to pay any remaining loan in full in the event of:

  • Reaching the end of the equity loan term
  • Paying of your repayment mortgage
  • Selling your home
  • If the terms of the equity loan contract are not followed and you are requested to pay in full

What if the Help to Buy: Equity Loan isn’t for me?

There are alternatives to the Help to Buy: Equity Loan scheme. These may be more suitable for you if you decide the equity loan isn’t for you. These include:

Shared Ownership: This allows you to part-buy and part-rent a property. It involves you purchasing a share of a property and only paying a mortgage on that share. You then pay rent to the housing association that owns the remaining share. You have the ability to increase your share of the property, up to 100% in some cases. Find out more about Shared Ownership.

Guarantor Mortgages: This type of mortgage is where a parent or close family member uses their own property or savings as collateral. It also involves them agreeing to cover payments if the homeowner defaults. This acts as security against your mortgage and may help you get a bigger loan where you may not be able to in normal circumstances. Find out more.

You can find out more information about the Help to Buy: Equity Loan scheme on the Government website. If you’re a first-time buyer looking for advice, contact us to speak with one of our Farr & Farr advisers.



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