The Help to Buy: Equity Loan is a government scheme introduced to help first-time buyers get themselves onto the property ladder.
If you are eligible for an equity loan, based on where you are buying, you could borrow up to 20% of the value of a new build property (this can be up to 40% in some parts of London). To use this scheme the property must be; a new-build, sold by a Help to Buy registered homebuilder and be the only home you own and live in.
It must not have been lived in by anyone before you buy it.
There is a ‘maximum property purchase price’ limit for the home you buy depending on which it’s in. This is the shown in the table below:
| Region | Maximum Property Price |
| 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 |
How does it work?
You will need to pay a minimum deposit of 5% of the property purchase price and arrange a repayment mortgage of at least 25% of the property purchase price. You can then borrow an equity loan to cover from 5% and up to 20% of the property purchase price of your newly built home. If the property is in London, then you can borrow up to 40%.
The equity loan percentage you borrow is used to calculate your interest and equity loan repayments. For example; if you buy a property for £200,000 and borrow 20% as the equity loan, the equity loan will be £40,000.
What is the interest like on the equity loan?
For the first 5 years you do not have to pay any interest on the loan. From the sixth you’ll be charged interest at a rate of 1.75% which is applied to the equity loan amount you originally borrowed.
The interest rate increases every year in April, by adding the Consumer Price Index (CPI) plus 2%. Your interest payments will decrease if you make a part repayment of the equity loan as the amount the interest rate is applied to will reduce.
When can you pay back the equity loan?
You can choose to pay part, or all, of your equity loan at any time. If you are choosing to pay back part of the equity loan, then the smallest repayment you can make is 10% of the market value of your home. Paying back part of your equity loan will reduce the monthly interest payments you’ll need to pay from the sixth year of taking out the equity loan.
Applying with the correct lender is the crucial part to any mortgage being secured successfully, which is where Mortgagez can help you. Our team of fully qualified mortgage advisers is on hand to help you every step of the way in obtaining a new mortgage, give us a call on 0330 1331 030 or email advice@mortgagez.com to get started today.
PLEASE NOTE: Article written 27th April 2022. Information contained within this article is likely to change and therefore should not be relied upon or form part of any form of decision making without seeking professional advice. *
YOUR HOME MAY BE REPOSSESSED IF YOU DON’T KEEP UP REPAYMENTS ON YOUR MORTGAGE
Any guidance and/or advice contained within this document is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK. Any technical or regulatory information contained within this document was correct at the time of producing it but as it may be subject to change it should not be exclusively relied upon when making a financial decision. The Financial Conduct Authority does not regulate advice on Buy to Let mortgages.
Article written: April 2022 270422 MZ000252
