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Everything You Need to Know about the New Equity Home Loan Scheme

Help-to-Buy is a Government scheme that aims at helping buyers to get up the property ladder.

Among these, you can find the New Equity Home Loan Scheme - an excellent option for those buyers who are looking at increasing their deposit and obtaining better mortgage rates. Nonetheless, this alternative might not be the best one for all buyers.

What Is the New Equity Home Loan Scheme?

The New Equity Home Loan Scheme is an updated version of the existing Equity Loan scheme launched in 2013. The New Equity Loan Scheme will run from April 2021 to March 2023.

The Equity Loan scheme is a program launched by Help-to-Buy in 2013. Thanks to this program, the government commits to lending 20% of the cost of a newly built property that will function as your primary residence - your home. This percentage goes up to 40% if you are building your home in London.

The remaining cost of the home will be paid by:

  • Your deposit of 5% or more
  • A mortgage of 25% or more

This program allows you to expand your initial deposit and increase your chances of securing a better mortgage rate for the remaining cost of the house. The loan is also interest-free for the first five years.

We will learn more about how to repay your Equity Home Loan below. However, it is important to notice that the loan you take out refers to a percentage of the home’s value. In turn, you will be paying the loan back on the same portion of the house. If the property’s value rises in the meantime, so will your loan.

Benefits of the Equity Home Loan Scheme

The Equity Home Loan Scheme was launched in 2013 and has been helping many first-time buyers and previous owners without a property to secure the home of their dreams. If you have been struggling to save a large deposit for a home, the Equity Home Loan Scheme can help you get started on the property ladder.

Thanks to this scheme, you can bulk up your deposit by 20% of your property’s value. This amount increases if your property is in London, reaching 40%.

The loan can help you gather an overall deposit of 25% (20% Equity Home Loan Scheme + 5% your deposit) or 45% if you are in London (40% Equity Home Loan Scheme + 5% your deposit).

Because of this chunkier deposit, you can then obtain better mortgage rates from lenders. Additionally, the loan won’t require you to pay any interest for the first five years - which is an attractive advantage for many first-time homeowners.

How Is the New Equity Loan 2021–2023 Different?

The Equity Home Loan Scheme was launched in 2013 and will still be operating until March 2021. From April 2021 to March 2023, this program will be replaced by the New Equity Home Loan Scheme. The two projects are similar in nature, but the second one includes some differences that you should keep in mind when opting for it.

Some of these variations include:

  • The loan will only be accessible by first-time buyers, while previously it was also open to previous homeowners who no longer owned a property.
  • There will be regional caps regarding how much you can borrow
  • The interest fee on the New Equity Home Loan is 0% for the first five years. Then, it is 1.75% of the loan value, rising each year in April.

What Do I Need to Know?

This scheme can be extremely advantageous for those individuals or families who are struggling to accumulate a suitable deposit for their first home. However, it might not be the most convenient option for everybody.

If you have decided to explore this option further, it is necessary to keep in mind the points below:

  • It only applies to new-build properties
  • You will need your homebuilder to be registered with the Help to Buy: Equity Loan scheme
  • You will need to prove that you can repay the monthly fee and payments
  • You can’t own another property at the same time
  • You can’t sublet the property
  • You can’t extend or build on the property – in order to ensure the house remains affordable. You can make internal improvements, however.
  • This government scheme might not be a suitable option for you if you already have a substantial deposit you can place towards the house.

Key Points to Remember

First-time buyers are always presented with a vast array of choices and loan options when it comes down to secure the perfect property. While it is crucial to act fast, buyers should also ensure that the loan option they have chosen is the right funding option for their future goals, lifestyle, and financial situation.

Undoubtedly, this scheme can help you get on the property ladder. However, it is not accessible or suitable for everybody. Getting in touch with a specialised mortgage broker such as trufe. can help you identify the best alternative for your specific situations. The expert teams here will guide you through each step of finding the best mortgage, placing a deposit, and securing your family home-to-be.

Below, you can find a comprehensive overview of all those aspects to keep in mind before speaking to your mortgage broker.

Only First-Time Buyers Can Apply

The current Equity Home Loan Scheme is accessible by first-time buyers and those homeowners who have previously owned property but no longer do. However, according to the format of the New Equity Home Loan Scheme launching in April 2021, the scheme will only be accessible by first-time buyers.

The Loan Is for New-Build Homes

The New Equity Home Loan Scheme is specifically designed to help families and individuals buy a new-build home. So, you can’t buy a property of a previous owner when this has been lived in. Additionally, the property value can only add up to £600,000 (this is set to change in April 2021, where regional caps might substitute this figure).

You Will Still Require a 5% Deposit.

Signing up for the New Equity Home Loan Scheme can help you accumulate a more significant deposit than the one you have to secure a home. However, you will still need to have the initial deposit of at least 5% of the home’s value. The aim of the program is only to bulk up your existing deposit to give you access to more advantageous mortgage rates.

There Will Be New Regional Caps on the Loan

Currently, the Equity Home Loan Scheme allows you to get access to properties that are worth up to £600,000. The loan will offer you a percentage of this sum which varies from 20% to 40% if your property is in London. This will cover £120,000 to £240,000 of the home’s value.

However, under the New Equity Home Loan Scheme, new regional caps will be introduced. Aside from the London area, the new scheme is applicable to properties cheaper than $600,000.

The New Equity Loan Is Interest-Free for the First 5 Years

The New Equity Home Loan Scheme offers you an interest-free option for the first five years. During this time, you will only need to pay £1 for management fees. However, once the five-year period is over, you will pay 1.75% in interest. This increases each year because of the Retail Prices Index (RPI) measure of inflation. Additional fees might also apply.

You Will Still Need to Get a Mortgage

The New Equity Home Loan Scheme is designed to help you get up the property ladder by bulking up your deposit. However, this won’t be enough to cover the whole property’s value. Therefore, you will still need to find a suitable mortgage for your needs to cover the last percentage.

However, some of the advantages of applying for the Equity Home Loan Scheme includes the fact that you will pay less interest on the mortgage, and you have access to better rates.

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There Are Alternative Schemes for Scotland and Wales

While the Equity Home Loan Scheme is not available in Scotland and Wales, other Help-to-Buy programs are available here.

Paying Back the Equity Loan?

The Equity Loan can be repaid monthly, in chunks of 10%, or in full. You won’t need to repay it in full until your mortgage agreement expires (max 25 years) or you are selling the property.

Homebuyers should keep in mind that the Equity Loan is different from a mortgage. The amount you borrow is directly related to the property’s value. Therefore, the amount you will need to pay back represents the same percentage of the home’s value.

In turn, if your property’s value goes up while you are still repaying the Equity Home Loan Scheme, your loan will rise too. At the same time, if your home’s value drops, the loan will too.

In terms of interest rates, it has been seen that these might be extremely advantageous during the first years, but they become less so in the longer run.

Bottom Line

The New Equity Home Loan Scheme is an advantageous scheme that allows many to-be homeowners to get up the property ladder. However, this is only accessible to a specific category of buyers, and it might not represent the most suitable option to access the best mortgage rates. Therefore, it is crucial to get in touch with an expert broker who can guide you through this journey.

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