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Help to Buy: Equity Loan | First Time Buyer Mortgages

Are you in the process of buying your first home? If so, then you may have already enrolled in the Help to Buy scheme. It’s important to understand what this scheme is and how it’s going to impact you. There are a few things to keep in mind here. 

Help to Buy Explained

This is a government scheme and it is designed to ensure that first time home buyers such as yourself have no issues purchasing their property. It’s essentially a helping hand that takes away some of the financial pressure. 

Under this scheme, you will only require 5% of the value for a home. This can be used as the deposit and then the government will provide a boost through the support of an equity loan. 

The typical property purchase price for first-time buyers using the Help to Buy scheme is approximately £214,000. This is according to data gathered from 2013 to 2018. 

The general aim is to ensure that first time buyers are able to move up the property ladder. There are two different help to buy options available through this scheme. As well as the equity loan, it’s also possible to explore a shared ownership scheme as well.  Through the scheme, those who save upwards of £200 a month towards their home will receive an increase of 25%. 

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How Does This Work?

When you purchase your home, the buyer puts down 5% of the property value. The government then steps in and lends another 20% providing a total of 25%. In London, the government provides 40% instead. 

It’s important to note that this only applies to homes that are not newly built. There is also a maximum purchase price of £600,000. Over the next couple of years, it is expected that there will be regional price caps. This is going to decrease the max value for a home that can be purchased with this scheme. 

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Interest Rates

The loan from the government will be interest-free for the first five years. After year six, you will need to pay an interest rate of 1.75%. The rate does increase every year in line with the RPI inflation rate and an extra 1%. 

Due to this being an equity loan instead of a flat amount, you will need to provide 20% of the value of the home back to the government when it’s time to sell. However, you can pay the loan back before this at any time. You just need to make sure that you are doing this in parts that are 10% of the market value for your home. 

It’s important to note that the equity loan does need to be repaid after 25 years. If you choose to sell your home, then you will need to pay it back at that stage. 

Exceptions 

There are limitations to this scheme and when it will be available. For instance, you will not be able to use this scheme to purchase a property that is going to rent out or to purchase a second home. 

This is only available to first time buyers as well as homeowners looking to move (the home you want to buy must be newly built with a price of up to £600,000). You will also only be able to take out a repayment mortgage if you use a Help to Buy scheme.

What About Shared Ownership?

Shared Ownership is designed to help those who are unable to afford a mortgage on 100% of a property. In this case, you buy a share in a home. This can be anywhere between 25 and 75%.

You will then pay rent on the remaining share of the home. When you choose this option, you can gain the possibility later on to take a bigger share in the home. As such, the benefits of this can grow with time and as your financial situation improves.

What Do You Need To Do?  

To gain the advantage of this scheme, you need to find a lender that participates. The good news is that there is an extensive list that includes Barclays, Virgin Money, Halifax, NatWest/RBS and many more. You do however need to make sure that you are selecting the right lender to match your needs and that’s where we come in. Our aim is to ensure that you find the right mortgage company to help when you are purchasing your first home.

Get in touch now to find out more about the services we offer and to discover how we help you. Our goal is to ensure that you gain the greatest benefits possible from Help to Buy. 

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trufe. is a trading name of Green FS Ltd (FRN 833558) which is an appointed representative of HL Partnership Limited, who are authorised and regulated by The Financial Conduct Authority.

The Financial Conduct Authority does not regulate commercial lending, secured or unsecured loans and some forms of Buy to Lets. Equity release includes Lifetime Mortgages and Home Reversion Schemes. We can advise and arrange Lifetime Mortgages and will refer to an approved specialist for Home Reversion schemes.

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The information contained within this website is subject to the UK regulatory regime and is therefore targeted at consumers based in the UK.
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