What is the Help to Buy Equity Loan Scheme?
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My boyfriend and I are currently living with my parents and have been saving for a deposit on a house. We want to buy a new house on an estate that is currently being developed. We understand that there’s a government scheme that will help us with our deposit. Can you tell us more, please?
Diane Fish of Smith & Pinching responds:
The Help to Buy Equity Loan Scheme is very specific in its eligibility criteria: since April 1, 2021 the scheme has only been available to first-time buyers purchasing new-build properties up to a regional price cap. The current rules are set to run until March 31, 2023.
If both you and your boyfriend are eligible, you must have a deposit of at least five per cent of the purchase price of your chosen new-build and the house itself must not be worth more than the cap set for the scheme in your region. In the East of England, the cap is quite high - £407,400 – but it varies considerably in other regions.
Under the scheme, you can borrow up to 20 per cent of the purchase price of your new home to use with your deposit. This means that you might be able to put down a larger total deposit, making your repayments potentially more affordable.
Equity loans are for a percentage of the property, not a cash amount, so when you come to sell your home, it is the proportion that you must repay, irrespective of any rises or falls in the property market. The loans run for a maximum of 25 years but must be repaid when the property is sold or when your mortgage term ends, if either of those events happen within the 25 years.
Help to Buy equity loans are interest-free for the first five years, with repayments required from year six onwards. The rate of interest in year six is currently 1.75 per cent and it will rise in line with inflation over the remaining term of the loan.
It’s important to remember that these are loans that must be paid back alongside any mortgage you take out. Affordability of repayments for the loan is something that lenders will consider when assessing you for a mortgage. In addition, the best mortgage rates might not be available if you are using the Help to Buy scheme. I recommend you get advice from an independent mortgage adviser to ensure you are putting the most suitable arrangement in place.
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Your home may be repossessed if you do not keep up payments on your mortgage. There will be a fee for mortgage advice. The precise amount will depend upon your circumstances, and the type of lending taken. Smith & Pinching’s minimum mortgage advice fee is £700. Any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk