How it works
Help To Buy equity loans are currently open to both first-time buyers and home movers on new-build homes worth up to £600,000. Not all new-build houses are available on this scheme, the builders decide which ones.
You won’t be able to rent out your home, or use it to buy a second home, it is for your main residence only.
The government will lend you 20% of the purchase price, you need to supply 5% of the purchase price, and then you raise the remainder with a 75% mortgage.
The big advantage is that you will effectively have a 25%deposit, and therefore have access to much lower interest rates than if you only had 5%.
The disadvantage is that the government will have a 20% stake in your property, and you will need to repay this at some point.
|Example of a purchase with an equity loan scheme
|Property purchase price
If the home in the table above sold later for £210,000, you would need to pay back £42,000 on the loan (20%), and you would have the rest. You would need to pay off your mortgage with your share of the money.
Equity loan fees
You won’t be charged loan fees for the first 5 years of owning your home. In the 6th year, you’ll be charged a fee of 1.75% of the loan’s value. After this, the fee will increase every year. The increase is worked out by using the Retail Prices Index plus 1%.
Applying for an equity loan
You need to register and apply to Orbit Homebuy Agents, who administer the scheme in this area. There is an application form and an affordability calculator to complete, which we can help with. They then check that you are eligible, and if so issue an Authority to Proceed.
Selling your home and paying back the loan
The home will be completely in your name, which means that you can sell it at any time. You’ll have to pay back the equity loan when you sell your home or at the end of your mortgage period - whichever comes first.
You can also pay back some of your equity loan without selling your home. You can pay back either 10% or 20% or the total amount, so long as the loan is worth at least 10% of the value of your home.
Help to Buy Mortgage Guarantee Scheme
Often, the biggest hurdle for First Time Buyers or people who are moving to their next home is the amount of deposit required by the lenders. The guarantee is provided by the Government to your lender - not to you. The idea is that more lenders will be willing to lend 95% of the property value.
The Help to Buy mortgage guarantee scheme hopefully will allow more people to buy a house, as it helps you to buy a home with a deposit of only 5% of the purchase price.