Help to Buy Equity Loan Scheme: Coronavirus Update

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The government is considering extending the Help to Buy scheme. The scheme will enable more people to take advantage of an equity loan to support them onto the property ladder.

The Help to Buy scheme offers an equity loan to the first-time buyers and existing homeowners money to buy a newly-built home.

 

Help to Buy equity loan scheme extended

The Government has confirmed it will extend its Help to Buy equity loan scheme from 2021 to 2023. However, this extension will be available to first-time buyers for purchasing newly built homes.

From 2021, there will also be new regional price caps which could reduce the maximum value of homes that can be bought through the Equity Loan Scheme.

Help to Buy equity loan

You can get a low-interest loan towards your deposit. This is called an equity loan.

Eligibility

The home you buy must:

  • be a new build
  • have a purchase price of up to £600,000 in England (or £300,000 in Wales)
  • be the only one you own
  • not be sub-let or rented out after you buy it
  • be one that you can show you cannot afford (if you’re applying in Wales)

How it works

With an equity loan:

  • you need a 5% deposit
  • the government will lend you up to 20% (up to 40% in London)
  • you need a mortgage of up to 75% for the rest (up to 55% in London)

You must buy your home from a registered Help to Buy builder – your agent should have a list.

There are different rules for equity loans in Wales.

Example

For a £200,000 propertyAmountPercentage
Cash deposit£10,0005%
Equity loan£40,000 (£80,000 in London)20% (40% in London)
Mortgage£150,000 (£110,000 in London)75% (55% in London)

Equity loan fees

You’ll have to pay equity loan fees, but not for the first 5 years.

In the sixth year, you’ll be charged a fee of 1.75% of the loan’s value. The fee then increases every year, according to the Retail Prices Index plus 1%.

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.

Fees do not count towards paying back the loan.

Paying back the Equity loan

You must pay back the loan after 25 years or when you sell your home – whichever comes first. The amount you pay back depends on how much your home is worth (the market value).

Example

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

So, you can pay back part or all of your loan at any time. However, the smallest repayment you can make is 10% of the market value of your home.

Example

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

How to apply

Apply through the:

The House Builders Federation has been suggesting the government to retain the scheme in its current form beyond 2021. That is to address some of the problems faced by buyers due to Covid-19.

Craig McKinlay, new business director at Kensington Mortgages, said:

“A potential extension of the Help to Buy scheme makes complete sense at this time. Builder and consumer confidence could struggle post-lockdown and this will certainly boost both.

“Construction jobs are not just vital to the housing market, but our economy too, and maintaining these is crucial to keep it running and helping us recover. In our current world of uncertainty, any certainty is extremely welcome.”

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Kate Davies, executive director of the Intermediary Mortgage Lenders Association (IMLA)  also said:

“Many borrowers who might reasonably have expected to be able to complete their purchase before the end of 2020 may now find that very challenging.

He further added “Any flexibility which will allow purchases to complete beyond the originally fixed deadlines will be welcomed.

“Going forward, it may be that some changes could sensibly be made to the scheme while allowing it to remain in place for longer. Such changes could, for example, relate to the types of properties being built and could address some of the criticism which Help to Buy has attracted in the past.”

Read our blog about Covid-19 Business-Friendly Measures by the Chancellor

 

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