Help to Buy dates back to the March 2013 budget and is a government scheme designed to “help” people who may be struggling to save the required funds for a deposit on a first home, or to move up the property ladder, even whilst having limited equity. In this article, we’ll be taking a look at the Equity Loan aspect of the help to buy scheme, which is directly related to New Homes.
THE EQUITY LOAN
Specifically restricted to new-build homes, the first part of the Help to Buy mortgage is an Equity Loan Scheme, which was launched on April 1st, 2013 and is available until 2020.
As set out by this section of the scheme, a potential buyer must raise 5% of a property’s value as a deposit, after this, the government will contribute a further loan of up to 20%, under the Homes and Communities Agency (HCA.) This allows potential homeowners to have a deposit of up to 25%, which will give them access to much more attractive mortgage rates from lenders who’re part of the scheme.
The cost of the government’s 20% section of the loan is really competitively priced, in fact, for the first five years; it’s completely interest-free. When it comes to year six, you’d be charged 1.75%, which will increase at a rate of 1% of that figure – plus an increase in inflation, every year after.
Those who borrow under the Equity Loan can choose to repay it at any time without any penalty. Borrowers can choose to pay back either 10% or 20% of the total amount, as long as the loan is worth at least 10% the value of your home.
However, if you don’t repay the equity loan whilst you’re still living in the property when you choose to move and sell the property, the government will reclaim its 20% in your home at its current value. So if your home has increased in price, it’ll be a considerable amount.
When it comes to the fine print, the Equity Loan aspect of Help to Buy is only applicable to properties worth up to £600,000. There’s no maximum income requirement, although the property MUST be a new-build home. Help to Buy can’t be used for buy-to-let properties and it must be your only property.
Normal mortgage checks apply, meaning that you’ll have to meet the mortgage lender’s criteria, i.e you should be able to cover monthly repayments and your credit score will need to be in a good condition.
There are Help to Buy agents in most areas in the UK, so to get started, get in touch with your local agent and they’ll be able to walk you through the process. In terms of lenders which are part of the scheme, here’s a list:
· Chorley Building Society
· Cumbria Building Society
· Leeds Building Society
· Newbury Building Society
· Teachers Building Society
· Virgin Money