Help to Buy equity loan explained

News 26.01.2018

Holly Offord

Interested in the Help to Buy equity loan scheme? We explain everything you need to know, including how it works and who is eligible.

Help to Buy equity loan mortgage

If you want to move home, but are struggling to raise a large enough deposit, a Help to Buy equity loan could be the answer.

This government scheme is available on all new build properties in England up to £600,000 and enables you to borrow 20% (40% in London) of the purchase price of your new home.

If you qualify, you would only need a 5% deposit and a mortgage for the remaining 75%. Your 5% mortgage deposit needs to come from your own resources, but it can be a gifted by a family member.

The Help to Buy equity loan is interest free for the first 5 years. But in the sixth year, the interest would increase to 1.75% and follow the retail prices index thereafter.

To avoid paying a higher rate of interest, you may be able to remortgage your home and look for a better rate. This would enable you to pay the loan off in one lump sum, and just have a mortgage which covers the outstanding debt on the property and the amount owed for the government loan.

When repaying the government equity loan, you must also pay back the same percentage that you originally borrowed. For example, if the purchase price of your home was £200,000 and you borrowed 20% (£40,000) from the government, when you sell or remortgage in 5 years’ time, the property could be valued at £250,000. If this is the case, you would have to pay the government 20% (£50,000) of your home’s new value.

Interested in the Help to Buy equity loan scheme? Speak to a Help to Buy mortgage advisor here at Fosters Financial. They are experts in the market and can quickly tell you if it would be a suitable option for your needs.