Affordable home ownership - equity loan
The Help to Buy Scheme allows you to first-time buyers and home-movers purchase a new-build property with as little as a 5% cash deposit. To help you arrange a mortgage, the government would lend another 20% (or 40% in London) in a form of an equity loan. The rest of the purchase price you will pay via mortgage arranged on the open market. Many lenders allow first-time buyers to arrange their mortgage through Help to Buy scheme.
We can help you arrange a mortgage for Help to Buy scheme and find the best deal for your circumstances. We can help you even if you are self-employed, run your own company, or have an adverse credit history. Call us to find out how we can help!
The equity loan is an interest-free for the first 5 years, with £1 fee per month only, so you don’t have to pay anything. However, from year 6, you will pay a 1.75% fee on the outstanding debt, this will be charged monthly. This interest fee will increase each year by the Retail Price Index
(RPI) plus 1% until you repay the loan.
At any point, you can refinance your mortgage and purchase an additional interest in the property by paying off the equity loan and you can repay the equity loan in full or in 10% chunks. The amount you borrow is a percentage of the value of the property so the repayment will be calculated as the percentage of the current value of the property and not the past. This means that if the value of your home goes up, so will the outstanding debt.
If you think this is a option for you, first check our mortgage calculators how much you could borrow from the bank, this would be the maximum mortgage amount you will be able to borrow. Your cash deposit would need to be at least 5% of the property, so based on this calculate the potential value of the property. Check if those amounts add up. If you need some help, call us for advice and we can calculate those numbers for you over the phone.
Next steps would be to find a suitable property. Check out property websites and new build listings to see what and where is available. Go to viewings and if you like it, reserve it. You will have to pay reservation fees, the agent will ask you questions to assess if the property will be affordable and you qualify for the Help to Buy Scheme. When you reserve the property, this is when it’s time to arrange a mortgage. Call us to find out the best rates and products suitable for you.
Buying a home in London worth £400,000
- Purchase price £400,000
- Cash contribution – £20,000
- Equity loan (40%) – £ 160,000
- Mortgage – £220,000
- Purchase – £400,000
- Value of the home when selling – £500,000
- Repayment of the 40% equity loan – £200,000
Please remember, the value of the property will be assessed by an independent valuer and might vary to the selling price. You will pay 20% (or 40%) of the value of the property and not the selling price!
The Help to Buy: Equity Loan for first-time buyers and home movers is ending on 31 March 2021. To qualify for this equity loan you must legally complete buying your home by 31 March 2021.
The new scheme available for first-time buyers only was introduced on the 1st of April 2021 and will be available until 31st March 2023.
The new Help-to-Buy Scheme has more rules:
- It is available to first-time buyers only
- There is a cap on the property price, with London cap of £600,000 and South East of £437,600
How to apply
- Calculate how much you can borrow – use our Help-to-Buy calculator
- Find your new home – search online for new homes on the Help-to-Buy website
- Reserve your new home – you will have to pay a reservation fee of up to £500. You will get a refund if you will not be accepted for the Equity Loan
- Speak to us about your mortgage options.
- Apply for your equity loan through the Help-to-Buy portal and submit your paperwork.
- If you get accepted, you will get ‘Authority to proceed’.
- At this time, we will apply for the mortgage. We will find the lender who will most likely approve you. We have access to over 90 lenders, that could accept you even in most complicated cases, for example, if you have bad credit, you are self-employed or any other unusual situation.
- At this time the normal conveyancing process will start. We can also help you to find and choose the solicitors.