May 9, 2022
Getting on the property ladder as a first-time buyer can be a very challenging thing to do, not least because it can be very expensive. You have to find the deposit, which can be tens of thousands of pounds, potentially have to pay stamp duty, then there are solicitor’s fees, moving costs and mortgage fees. It can be really hard to save all of this money, often making getting on the property ladder unaffordable. This is where the Government’s affordable home ownership schemes come in to help. In this article we review the Government’s Equity Loan Help to Buy Scheme.
Help to Buy: Equity loan
Under this scheme, any qualifying person will get a loan towards the cost of a property they want to buy.
The eligibility rules for this scheme are quite simple:
All applications must be:
- 18 or over
- a first-time buyer
- have at least a 5% deposit
- taking on a mortgage for at least 25% of the purchase price
- able to afford the fees and interest payments
You cannot get the equity loan if you have ever:
- owned a home or residential land in the UK or abroad
- had any form of sharia mortgage finance
If you are married, in a civil partnership or co-habiting then you must make a joint application.
A qualifying property must:
- be a new-build
- be sold by a Help to Buy registered homebuilder
- be the only home you own and live in
- not have been lived in by anyone before you buy it.
There are price caps on the property depending on the region in England that you are buying the property in:
| Region | Maximum property purchase price |
| North East | £186,100 |
| North West | £224,400 |
| Yorkshire and the Humber | £228,100 |
| East Midlands | £261,900 |
| West Midlands | £255,600 |
| East of England | £407,400 |
| London | £600,000 |
| South East | £437,600 |
| South West | £349,000 |
If all the applicable eligibility rules have been followed then you can borrow up to 20% of the property value (40% in London) from the Government. There is no interest to be paid for the first 5 years and in the 6th year an interest rate of 1.75% will be applied to the equity loan, there is also a £1 monthly admin fee which is payable every month from the start of the loan. The rate at which you pay interest will increase every year, in April by adding the consumer price index plus 2%.
You can pay back part or all of the loan at any time but the minimum part repayment is 10% based on the market value of the property at the time of the repayment. This is important to understand. When you repay, you pay based on the market value of the property at the time you repay and not the value of the property that you originally bought the property for. So, if you purchased a property for £200,000 and took out a 20% loan, you will have borrowed £40,000. If you want to pay 10% back and the property is now valued at £250,000 you will pay £25,000. If when you come to pay back the final 10% the property is valued at £300,000 you will pay £30,000. This, then, is a total repayment of £55,000 against an initial borrowing of £40,000.
No matter what, your loan will need to be repaid in full when you:
- reach the end of the equity loan term (normally 25 years)
- pay off your repayment mortgage
- sell your home
It is important to note that, if you sell your property the amount paid back is based on either the current market value of the property or the agreed sale price if it is higher than market value.
The current help to buy scheme closes in March 2023 so if you want to take advantage of the scheme, you will need to have completed your sale by March 2023.
The Help-to-Buy scheme is a great way to get on to the property ladder but it is advisable to get expert financial advice before opting to enrol on the scheme.