What is a Help To Buy Equity Loan?
This is a loan from the government which you can combine with a deposit and a mortgage to buy a new-build property.
The Government will top up your deposit with an equity loan up to the value of 20% of the property, enabling you to only require a 75% mortgage. This makes you a better prospect to the lender, and possibly open up access to a better deals on the interest rate. In London only, the loan can rise to 40% of the property value.
An equity loan is interest-free for five years and from year 6 you’ll be charged 1.75% which will increase by the Consumer Price Index (CPI) plus 2% (1% if you took the equity loan before December 2019).
An equity loan must be repaid after 25 years, or earlier if you sell your home.
You must repay the same percentage of the proceeds of the sale as the initial equity loan. Therefore if you received an equity loan for 20% of the purchase price of your home, you must repay 20% of the proceeds of the future sale. That means if the market value of your home rises, so does the amount you owe on your equity loan. If the value of your home falls, the amount you owe on your equity loan falls too.
Who is Help to Buy for?
In 2013 the government launched the Help to Buy scheme to make it easier for first-time buyers with small deposits to buy their first property, and to help existing homeowners to move house.
Since 1 April 2021, Help to Buy has been exclusively available to first-time buyers, with regional price caps put in place to limit the cost of homes sold under the scheme. Help to Buy is currently only available in Wales as the scheme has been extended to 2025
Help to Buy equity loans are only available on new-build properties so, if you want a modern home, a Help to Buy equity loan could be a good way to reduce the size of the mortgage you take out.