A Guide To: Help to Buy LoansAlison Abbotts
If you are looking to purchase a new build property, you may be eligible for the Help to Buy Equity Loan Scheme run by the Government.
The scheme provides you with a loan of up to 20% of the cost of your newly built home (or up to 40% in London). You won’t be charged loan fees for the first five years of owning your home. After this, you will be charged interest at a rate of 1.75% for the first year and then this will increase each year in line with inflation.
Some conditions to being able to use the scheme are that:
- You must not own any other property at the time of purchasing your new property using the Loan.
- The property that you are purchasing must be worth £600,000 or less.
- You must be able to provide a 5% deposit for the property.
Let’s say you want to buy a new-build home worth £300,000. Using the Help to Buy scheme, you could put down a 5% deposit (£15,000), apply for an equity loan worth 20% (£60,000), meaning you would only need to get a 75% mortgage (£225,000).
Paying off your Loan
You must pay off your loan either after 25 years or when you sell your home. You will have to repay the Government 20% of the value of the property, even if the property has increased in value. For example if you purchased a property in 2015 for £200,000 and then sold the property in 2020 for £250,000, you will have to pay back the Government £50,000 when you initially borrowed only £40,000. This may be something to consider when deciding whether a Help to Buy Loan is appropriate for you.
You can also elect to pay back the loan early. If you can afford to do so before 5 years, then this will mean you avoid paying interest on the Loan.
Changes to Help to Buy Equity Loans from 1st April 2021
- The scheme will only be available for first time buyers; those who haven’t previously owned or purchased property.
- The scheme will introduce regional property price caps based on local markets. These will set the maximum price of a new build home that can be bought with Help to Buy in each region.
If you wish to take advantage of the current scheme then the purchase of your home must have reached legal completion by 31 March 2021.
It is also worth noting that the Help to Buy scheme will be coming to an end altogether on 31 March 2023.
Tinsdills Residential Property Team are highly experienced in both purchasing homes for clients using the scheme and assisting in redeeming the equity loan from Government. If you would like some more information regarding any of the above then please do not hesitate to contact the Team.