Help to buy scheme – Equity Loan

The Help to buy/equity loan scheme is aimed at people with small deposits, but it can only be used for newly built homes.

To qualify for a government bonus, the property you are buying must have a price of £250,000 or less (or a higher price limit of £450,000 in London) and you must be a first-time buyer.

With a Help to Buy: Equity Loan the Government lends you up to 20% of the cost of your newly built home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest.

You won’t be charged loan fees on the 20% loan for the first five years of owning your home.

Here is an example:

Your newly built home is priced at £200,000. You need a minimum of a 5% deposit (£10,000), the government will then give you a 40% equity loan (£40,000). You will then get a 75% mortgage from a commercial lender (£150,000).

This is how the £40,000 equity loan works:

• There is no interest to pay for the first 5 years
• In year 6, interest (known as a ‘loan fee’) kicks in at 1.75%
• The rate increases every year thereafter at the RPI (retail prices index) measure of inflation plus 1%

London – Help to buy:

The London Help to Buy scheme is different as you will get a larger equity loan from the government. When you have little as a 5% deposit on a newly built home, you can get a Government equity loan for up to 40% of the purchase price.

You won’t be charged loan fees on the 40% loan for the first five years of owning your home.

Here is an example:

Your newly built London home is sold for £400,000. Your 5% deposit would be £20,000 and your 40% government loan would be £160,000. Finally you will get a 55% mortgage from a commercial lender, £220,000.

As a result you won’t be charged loan fees on the 40% loan for the first five years of owning your home either.

Please see the link which shows what boroughs fall into this category, https://www.helptobuy.gov.uk/documents/2016/11/london_boroughs.pdf.