Help to Buy in England and Wales
Help to Buy – equity loan
This scheme is also designed to help those with 5% deposits get on the housing ladder, but it's only available on select new-build properties. The Government lends you up to 20% of the property price and after five years you'll have to start paying interest on the loan.
Who can do it? First-time buyers and home movers with a deposit of at least 5%. The current scheme will run until April 2021 when it will be replaced by a watered-down version. The new version will last until March 2023 - it will only be open to first-time buyers and include lower, regional property price caps.
House price: A home worth less than £600,000 (£300,000 in Wales).
Property type: New build only.
How it works… The government lends you up to 20% of the property value (interest-free for the first five years). This substantially reduces the monthly costs in the first five years and should give you access to cheaper mortgage products, as you only need to borrow 75% of the value from the lender. You need to put down at least 5% deposit and interest on the loan becomes payable in the 6th year.
The government controls up to 20% of the property value. You will need to pay this back at the end of the mortgage or when you sell, and after year five, you start paying interest on it. The amount you need to repay will depend on the property value at that time.
What’s the interest rate on the loan? It’s interest-free for the first five years. From year six you start to pay interest, but only on the original loan amount. So say you borrow £20,000 but owe £25,000 at the end because the property price goes up, interest is only charged on the original £20,000. The rate from year six is 1.75%, though it rises each subsequent year by the retail prices index (RPI) inflation measure, plus one percentage point. Assuming RPI is 3%, the interest rate would rise by 4% (3% + 1%). So instead of paying 1.75%, as 4% of that is 0.07%, your rate would rise to 1.82%.
When do I pay the loan back? It must be repaid when the house is sold or at the end of your mortgage term – whichever comes first. The Government will take 20% of the sale price, whether higher or lower in monetary terms than the amount lent. You can also pay back some or all of your equity loan without selling your home.