The Help to Buy equity loan scheme was a government scheme created to help first-time buyers get onto the property ladder with a mortgage with just a 5% deposit. Unfortunately, the Help to Buy equity loan scheme closed to new applications on the 31st of October 2022.
However, it may be possible for you to get a mortgage with a 5% deposit without the help of a scheme.
If you’re a first-time buyer, we understand how hard it can be to get on the property ladder. House prices are often high and raising the lump sum needed for a mortgage deposit can be difficult.
Thankfully, the government has launched various schemes to make homeownership more readily available to those looking to move into their first property, so you don’t have to pay rent forever!
One such scheme is the Help To Buy Equity Loan scheme.
So, if you are first-time buyers looking to get on the property ladder, continue reading as the Help To Buy scheme could be right for you. Alternatively, read our guide on First Home Schemes.
If you are looking at your remortgage option read our Help To Buy Remortgage Guide.
What is the Help To Buy scheme?
Help To Buy is a government scheme that was introduced in 2013. It is designed to help first-time buyers purchase a mortgage for a new-build home with as little as a 5% deposit of the property value.
If you were to use this scheme, you could receive a government loan to obtain a new build mortgage on a property valued under £600,000 in England and £300,000 in Wales.
There is a maximum property price limit for the home you buy and this depends on the region you want to live in. As stated, £600,000 is the price cap in England, but this figure is based on what the government lends to buyers in London.
If you wanted to live elsewhere in England, you would have to adhere to the regional price caps set by the government. In the North West, for example, the maximum purchase price of a property you could be eligible for is £224, 400 and in the North East, the maximum purchase price is £186,100.
Please note: The Help To Buy equity loan is not available to first-time buyers in Northern Ireland and it is no longer available to buyers in Scotland. If you’re in England and Wales, the scheme closes to new applications on 31 October 2022 so you should get your application in soon if you want to use the scheme to buy a property.
Get your help to buy mortgage
How does the Help To Buy Loan scheme work?
With the Help To Buy Equity scheme, you need only put down 5% of the property value of a new build home as a mortgage deposit. The government will boost this amount with an equity loan percentage of 20% and in London, the equity loan percentage is 40%, so you will only need to secure a mortgage worth 75% of the property purchase price (or 55% of the purchase price if you’re based in London).
The loan is interest-free for the first five years but in the sixth year, you will have to pay interest payments of 1.75% on the equity loan amount you originally borrowed. Interest will continue to rise in subsequent years in line with the rate of inflation set by the Consumer Price Index. But if you pay off some of the equity loan early, the amount of interest on your equity loan repayment will be reduced.
You will also need to pay a £1 monthly management fee by direct debit when you take out the loan.
You must pay back the equity loan when you have reached the end of the loan term (usually 25 years) or if you sell your home, whichever comes sooner. If you don’t keep to the terms and conditions of the loan, you may be asked to repay it in full before the end date.
Who is eligible for the Help To Buy Loan scheme?
To meet the eligibility criteria, you must be…
- Aged 18 or older
- A first-time buyer
- Living in England or Wales
- Able to pay the small deposit
- Able to make the loan repayments, including the extra interest payment after the interest-free period ends
The property you buy with the Help To Buy Equity loan must be…
- A new-build
- Sold by a Help To Buy registered homebuilder
- The only home you own and live in
- Within the regional price limits
You are not eligible for the Help To Buy Equity loan if…
- You have ever owned a home or residential land in the UK
- Had any form of sharia mortgage finance
- You don’t want to buy a new build Help To Buy property
Please note: Not all lenders offer mortgages to people wanting to buy Help To Buy properties but if you are eligible for the loan, we will put you in touch with those lenders that do give mortgages to people wanting to use the scheme.
Can I pay back the equity loan scheme early?
Yes, you can pay back all or part of the loan at any time.
Read our guide on How to Repay Your Help to Buy Equity Loan
If you’re making part repayments, these need to be at least 10% of the current value of your home. Of course, you need to make sure that you’re in a financial position to make these repayments, but if you are able to do so, you will benefit financially as the interest rate will be lower at the end of the interest-free period.
Whether you repay the loan in full or in part, your repayment will be worked out as a percentage of the market value of your home at the time you want to pay. If the market value of your home rises, you will owe more on your equity loan. But if the value of your home falls, the amount you owe will be reduced.
Some people remortgage at the end of the initial five-year period so they can repay the equity loan in full. This might be something you want to consider as you will avoid being charged interest on the loan and you may be eligible for better deals on a standard mortgage. Speak to one of our mortgage advisors if you would like to know more about how to remortgage.
How do I apply for the Help To Buy equity loan?
If you’re interested in a Help To Buy equity loan, you need to…
- Reserve a new build property with a homebuilder registered with the Help To Buy Loan scheme
- Submit a Property Information Form to your Help To Buy agent by 6 pm on 31 October 2022
Of course, you do need to be eligible for the scheme. Your Help To Buy agent will assess your eligibility and if you are successful at this stage, they will issue you with an ‘Authority to Proceed’ so you can apply for a repayment mortgage that covers the rest of the property’s market value.
Before applying, you need to make sure that you have the funds for…
- The reservation fee (up to £500)
- The deposit on the property (at least 5%)
- The home buying fees, such as stamp duty and the mortgage costs
- The equity loan repayments (including the monthly interest payment)
How YesCanDo Money Can Help
If you’re interested in the Help To Buy Loan scheme, we can advise you on whether the scheme is right for somebody in your situation. We will go into further detail on how the government’s equity loan works and advise you on your other options, such as the Shared Ownership scheme and the Mortgage Guarantee scheme.
If a Help To Buy equity loan is the logical step forward, we will discuss with you the mortgage deals that may be right for you.
As you will need to start paying interest on your equity loan after five years, we will reduce your financial burden by helping you find a mortgage lender that offers lower monthly interest payments on a mortgage deal. This will make your life a little easier once the interest kicks in during your equity loan term.
We will also provide advice and support that is based on your personal circumstances and will give you all the help you need throughout your mortgage journey.
To learn more, get in touch with us using the contact details on our website and check out our other first time buyer mortgage advice guides for further helpful information.