Help to Buy Equity Loan – secure your new home with only a 5% deposit
“The Help to Buy Equity Loan is a fantastic proposition, especially for first-time buyers. It puts the dream of owning your own home within reach, and offers growing families the chance to upsize more quickly.”
– Neil Hyde, Director at Michael Jones
Buying your own home is probably the largest financial investment that many of us will ever make. To ease the transition into home ownership and move you into a brand-new home quickly, we guide you every step of the way through an excellent Government scheme called the ‘Help to Buy Equity Loan’; a low-interest contribution, designed to ease the burden of saving for your deposit.
It’s good to know…
The current Help to Buy equity loan scheme is ending in March 2021, when it will then be replaced by a new scheme, which will run from April 2021 until March 2023 – however, it will only be open to first-time buyers and will include regional property price caps.
*Terms and conditions apply, see end of article.
How the Help to Buy Equity Loan works:
The current Help to Buy Equity Loan scheme qualifies those who are eligible to buy a newly built home, worth up to £600,000, with just a 5% deposit. The Government then supplements this by loaning you up to 20% of the purchase price, giving you a potential deposit totalling 25%. You can then apply for a mortgage of 75%* to make up the full purchase price of the property.
*Note: Individual circumstances apply, dependent on your income and expenditure.
Repaying the Help to Buy loan:
Under the terms of the loan agreement, you are expected to repay in full, dependent on which of the following scenarios comes first: a) after 25 years, b) at the end of your mortgage term, or c) when you sell your home.
Also, by loaning you 20% towards your deposit, the Government is in effect investing 20% equity in your property. So, while you own 100% of the property, they are entitled to a stake in the profit should you opt to sell; in other words, if your property value goes up, you repay more, but if it goes down, you pay less.
The original purchase price of your home was £300,000 (20% deposit contribution of £60,000 from the Government).
It’s now worth £375,000, meaning that when you come to sell, the amount repayable grows to £75,000, representing 20% of the new value of your home, not the original purchase price.
Pay it off faster: you can pay off part of the loan early should you choose to, either at 10% or 20% of the amount remaining.
Help to Buy loan interest rates:
The 20% equity loaned to you is interest-free for the first 5 years, allowing you breathing room over a time when finances might be stretched. You then begin to pay off the annual interest fee from year 6, which is charged at 1.75% of the loan value and increases each year in line with the Retail Prices Index (RPI) inflation measure, plus 1%.
If the RPI is at 3%, then the interest rate would increase by 4% (3% RPI + 1%). So, since 4% of 1.75% is 0.07%, your interest rate becomes 1.82%.
The good news is that the interest fee is only payable against the original loan amount and is unaffected by any increase in the value of your home (unlike loan repayments). You’ll be contacted prior to the introduction of fees by a local Help to Buy Agent and you’ll also begin receiving annual statements.
Help to Buy Equity Loan eligibility
First-time buyers and existing homeowners looking to make a move are both eligible in the current scheme up to March 2021 and then from April 2021 – March 2023 only first-time buyers will be eligible. Bear in mind though, that there are certain restrictions in place to ensure that those who really need the help most are those catered for:
- The home must be a brand-new build
- The price tag cannot be more than £600,000 (England only)
- You cannot sub-let or rent out the property
- It must be your only property, not as a second home
Many of our house builders offer the Help to Buy Equity Loan on new builds, so be sure to speak to one of our team, who will happily advise you on which homes are eligible.
How Michael Jones can help you to buy:
It’s very simple:
1. Visit our website and browse our New Homes section and find a property that takes your fancy.
2. Contact us directly or visit us at your local office – we’ll gladly take you through your different options and answer any questions you might have, including booking in your property viewings (subject to the stage of the new build development).
A few more things to remember…
- Interest-only mortgages are not applicable – your mortgage must be a repayment loan with interest and capital paid every month.
- Part-exchange is not available in conjunction with the Help to Buy Equity Loan scheme.
- Stamp Duty is still applicable when you purchase your home through the scheme, so remember to include that in your budget at the full property market price. For first-time buyers, you will now pay zero stamp duty on the first £300,000 on any home that costs up to £500,000. For further information on the new stamp duty rules click here.
- You own 100% of the property! The Government’s ‘share’ is only in the equity loan itself, and therefore a share of the profits.
- Extensions or alterations: you must obtain permission first before commencing any work. This is because significant home improvements are costly, and the Homes and Communities Agency (the loan providers), expect loan repayments to be given priority. Exceptions can be made at the discretion of the Post Sales Help to Buy Agent, especially in instances where alterations are required to cater for a disability.
If you require any further information on the Help to Buy Equity Loan, please contact us and we’ll make finding and moving into your brand-new home as easy as possible.
*Security over your home is required. Help to Buy cannot be used in conjunction with part exchange. Availability of other incentives/offers subject to lenders criteria at Michael Jones’ discretion. Your mortgage lender’s deposit requirements may vary, but you should usually expect to contribute a deposit of at least 5% of the purchase price. Available on selected properties, and subject to the Government’s specific terms, conditions and qualifying criteria. Please check that this mortgage will meet your needs if you want to move or sell your home, or you would like your family to inherit it. If you are in any doubt, please seek independent advice. Your home may be repossessed if you do not keep up repayment on a mortgage or any other debt secured on it. Michael Jones and Co. Chapelworth House, 22-26 Chapel Road, Worthing, West Sussex, BN1 1BE.
Content accurate at time of publishing.