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Home / Mortgages / Help to Buy Mortgage
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Help to Buy Mortgage Advisors & Brokers 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.

Here's an example

Market value of your homeEquity LoanAmount
Bought for £200,00020%Borrowed £40,000
Sold for £250,00020%Pay back £50,000

 

Staircasing

You may decide to staircase out of your equity loan. This is when you pay off part of your equity loan. You can pay either 50% or 100% of the outstanding sum. In London where the equity loan can be up to 40% of the purchase price, you are able to pay it off in four 10% increments instead.

Here's an example

Market value of your homePercentageAmount
Bought for £200,000Borrowed 20%£40,000
Value at time of payment £220,000Paying back 10%£22,000

Remortgaging

You could also remortgage to pay off your equity loan. This is one of the most popular options. You could either:

  • Transfer your existing mortgage to a new product and/or lender and keep your full equity loan
  • Remortgage for a higher amount to repay your existing mortgage and all of the equity loan, giving you full ownership of your property 
  • Remortgage for a higher amount to repay your existing mortgage and partially repay your equity loan

Read more on remortgaging Help to Buy.

Download our Help to Buy Guide
Who provides the loan contribution for the Help to Buy Equity Loan Scheme?Expand

The equity loan is provided by Homes England, a government agency funded by the Ministry of Housing.

Can I extend or alter my property purchased through the Help to Buy Equity Loan Scheme?Expand

Not without permission. You can usually only make significant home improvements on a Help to Buy property in exceptional circumstances, for example if modifications are required for a disability.

Can you add or change a name on a property purchased through the Help to Buy Equity Loan Scheme?Expand

Names listed on the equity loan and property deeds can be removed in certain circumstances but you cannot add new names, as this is classed as a new application and requires a new lending decision.

If someone such as a partner moves out and no longer wants to be part of the equity loan agreement, the Help to Buy Equity Loan administrator can arrange for a ‘Deed of Release’ which allows them to be removed from the equity loan and from the obligation of having to make repayments.

Can I sublet or rent out a property purchased through the Help to Buy Equity Loan Scheme?Expand

No, you must not sublet or rent the property out.

Who is responsible for repairs and maintenance within my property purchased through the Help to Buy Equity Loan Scheme?Expand

It is your responsibility as the buyer to repair and maintain your home, just as you would in normal circumstances. New homes often come with a guarantee that will cover certain major defects for up to ten years after it was built. Many builders also offer a two year guarantee on the property but this does vary.

Is Help to Buy a Shared Ownership scheme?Expand

No - when you use the Help to Buy Equity Loan Scheme, you legally own and purchase 100% of your home.

How long will the Help to Buy Equity Loan Scheme be available for?Expand

In England, the scheme is due to run until March 2023.

How do I find a Help to Buy property?Expand

When house hunting, look out for the Help to Buy logo at residential housing developments and on websites. You can then contact the developer or the estate agent for details. Alternatively, take a look at the Government’s Help to Buy website and browse for properties there.

How can I find out if I am eligible for Help to Buy?Expand

The Help to Buy Equity Loan Scheme is run by government-appointed Help to Buy agents who are available to help you work out your eligibility and if so, help you purchase a home through the scheme. As of January 2020, the three Help to Buy agents are Plus Dane Housing (North), BPHA (Midlands and London) and Radian (South).

How can Mortgage Light help?

At Mortgage Light, we are experienced and knowledgeable on the Help to Buy schemes. They can be a confusing and tricky thing to navigate, so we’re here to make it much easier for you. If you’d like to have a chat with one of our experts to understand more about the scheme and whether it’s the best option to meet your circumstances, get in touch with us. We’re always happy to help.

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Free Initial Consultation

All of our brokers deal with the whole of the mortgage market. It doesn’t matter what the question or when you want to speak to us, we have brokers available on the phone or face to face seven days a week. Whether you are just thinking of buying a home and have no idea where to start, a seasoned investor or someone looking to better your current mortgage product, we are happy to help andchat over ideas free of charge.

So we can give you plain and simple advice we will run through some basic questions to help us tailor products to suit your needs. Upon us taking your application forward we will write to inform you that we have given you advice and give you a Key Facts Illustration breaking down the important elements of the product and the fees involved.

For us to take your application forward to a lender we charge an upfront administration fee of £349. For our returning customers looking to renew their mortgage product this fee reduces to £199. We also receive commission from the lender.

A fee of £349 is payable on application of the mortgage. We will receive commission from the lender in addition to the fees you pay. Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage. As with all insurance policies, conditions and exclusions will apply.
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