Help to Buy mortgages advisers and brokers working in Milton Keynes

Understanding the Help to Buy Equity Loan Scheme

What is the Help to Buy Equity Loan Scheme?

The Help to Buy Equity Loan Scheme was launched by the government in 2013 and has since gone through a number of changes. In 2021, the scheme became exclusive to first-time buyers only, and now enforces regional price limits.

This means that buyers can only use the scheme to purchase a home costing no more than the specified property price cap in their region. This is to ensure that the scheme reaches the people who need it most.

The regional price caps are as follows:
Regional price caps:

• 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

In order to be eligible for the Help to Buy Equity Loan Scheme, you must tick the following boxes:

• You must be a first-time buyer
• You must be purchasing a new build from a registered Help to Buy builder
• You must be purchasing a new build costing no more than your regional price cap
• The new build must be the only property you own and your main residence

How does the Help to Buy Equity Loan Scheme work?

When you make use of the Help to Buy Equity Loan Scheme, the government lends you up to 20% of the cost of your new build home (up to 40% in London), so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest (up to 55% in London).

Here's an example

Property purchase price - £240,000

Buyers cash deposit (minimum 5%) - £12,000

Government equity loan - £48,000

Mortgage remaining (minimum 75%) - £180,000

The great thing about this scheme is that your equity loan is interest free for the first five years. After five years, you’ll incur a fee of 1.75% of the loan value and this fee increases each year by a further 1%, plus any increase in the Retail Price Index. 

This fee does not contribute towards the repayment of the loan amount and your equity loan must be fully repaid upon sale of the property from the sale proceeds, or after a maximum of 25 years. Your Help to Buy agent will contact you to set up these monthly fee payments. You’ll also get a statement about your loan each year.

Because the government owns 20% of what your property is worth (rather than what you paid for it), if your property increases in value over the years, so does your equity loan.

Why use the Help to Buy Equity Loan Scheme?

• You require a small deposit (5%) which means lower upfront costs
• Your budget may allow you to buy a bigger home, or one with a higher purchase price
• There’s no interest to pay on your equity loan for the first five years 
• With a loan guaranteed by the government, you will likely qualify for a wider range of mortgages as you are less of a risk to the lender
• Similarly, you may be able to access cheaper mortgage rates

Things to be aware of

• After five years, the equity loan will become payable monthly (interest only)
• The equity loan is not fixed
• You can only buy new build properties
• You will be limited by the price cap in your region
• You can only borrow from certain lenders

Repaying your Help to Buy Equity Loan

Even at the beginning of your Help to Buy journey, it’s important to consider how repaying the equity loan will work. Remember that your loan amount is not fixed as it is based upon the market value of your property, which may have increased or decreased since purchasing. You may eventually have to pay back a higher amount than you originally borrowed so you will need to have your home valued before you plan any repayment to your equity loan.