HELP TO BUY
What is a Help to Buy Equity loan?
With a Help to Buy: Equity Loan the Government lends you up to 20% of the cost of your newly built home, as long as you have a 5% cash deposit and have secured a 75% repayment mortgage to cover the price of the home.
HOW DOES THE SCHEME WORK?
Please see example below:
Let's say the home you are looking to purchase is priced at £200,000, a deposit of 5% (£10,000) is required from You. Thereafter, if your application is approved, you would receive up to 20% from the government equity loan (£40,000). This would leave a balance of 75% (£150,000) of the mortgage cost covered by securing a repayment mortgage.
Will you pay interest?
Interest on the equity loan is payable after 5 years. Please find details below:
Years 1-5: NO FEE
Years 6: 1.75% of the loan
Year 7 & onward: 1.75% of the loan fee, plus the Retail Price Index (RPI) at the time of sale + 1%
Please note: The interest fees shown above, do not go towards paying off the equity loan!
What happens if I sell my home?
If you sell your home, or you are looking to pay off your mortgage, you must pay back the equity loan, plus the equivalent % increase in value: Please find an example below.
You purchased your new home for £200,000
Your sell your home for £240,000, which equates to a 20% increase in value.
You will pay off the equity loan + any value increase:
£40,000 loan, 20% = £8,000 – payback £48,000
You will also pay back your repayment mortgage of £150,000 + agreed interest
(less any repayments)
THE RESIDUAL BALANCE YOU HAVE FOR A DEPOSIT ON YOUR NEXT HOME IS AT LEAST - £42,000.
The example above is theoretical and would be dictated by interest rates, amount of actual mortgage repayments, initial cost of property and actual increase in property value, if any!
Please do not apply for the Equity scheme loan if:
You are looking to purchase a second home or a property to rent.
The scheme is available on homes up to a set price value e.g. England £600,000. Other schemes and thresholds apply in Wales, Scotland and Northern Ireland. If you have a Help to Buy equity loan, then you must use a repayment mortgage only.
Mortgages Explained is able to help you with all matters involving the Help to Buy Scheme, so why not contact us for a free, no obligation meeting and let us support you with finding your new home.