Help to Buy equity loan: the story so farAre first-time buyers benefiting from the Help to Buy scheme?

15 February 2016

Help to Buy equity loan

You'll need to save a deposit of at least 5% to use the Help to Buy equity loan scheme

Four in five homes bought using Help to Buy equity loans are purchased by first-time buyers, according to government data released today.

The figures, which cover the period from April 2013 (when the scheme first launched) to June 2015, reveal that first-time buyers using the scheme benefited from an average equity loan of £39,907.

The Help to Buy equity loan scheme has proven particularly popular with younger home buyers, with three in five (62%) aged 16-34, and just 9% aged 45 or over.

  • If you're thinking of buying a home using a Help to Buy equity loan and want to understand what this means for your mortgage application, call Which? Mortgage Advisers for a free consultation on 0808 252 7987

Help to Buy equity loans in numbers

The report, commissioned by the government and conducted by Ipsos Mori, reveals some interesting stats about the people taking out Help to Buy equity loans:

  • £47,050 - average household income of a buyer using a Help to Buy equity loan
  • 61% - percentage of buyers who said that the scheme enabled them to start looking for a home to buy earlier than they otherwise would have
  • £216,000 - average price of a property bought using the scheme
  • £39,907 - average equity loan for first-time buyers
  • £52,833 - average equity loan for existing homeowners
  • 95% - percentage of London users who were first-time buyers, compared to 82% in the rest of the country
  • £18,312 - average deposit saved up by buyers

According to separate government data released in December 2015, 62,569 properties were bought using Help to Buy equity loans in the scheme's first 30 months.

Find out more: Help to Buy equity loans - check out our full guide to understand how they work and whether you're eligible

What is a Help to Buy equity loan?

Help to Buy equity loans allow buyers - both first-timers and those who already own their home - to buy a new-build property with a 5% deposit.

It works like this: if you have a deposit of 5%, the government provides a loan of up to 20% of the property's value (or 40% in London), and you get a mortgage to cover the remaining 75% (or 55% in London). 

For example, if you wanted to buy a house for £200,000 with a 5% deposit, you would need:

  • £10,000 deposit
  • £40,000 equity loan/£80,000 in London
  • £150,000 mortgage/£110,000 in London

As you're borrowing a smaller amount from a mortgage lender than you would be without an equity loan, you're more likely to be granted a mortgage and should be able to access better rates - though this is dependent on your personal circumstances.

It's important to be aware of the potential downsides of taking out an equity loan, too.

David Blake from Which? Mortgage Advisers said: 'If you're considering going down this route, it's important that you understand the implications of refinancing in the future as your choice may be limited. You should also think about the potential cost implications of paying back both the mortgage and equity loan.'

For personal advice on Help to Buy equity loans, call Which? Mortgage Advisers on 0808 252 7987.

Find out more: London Help to Buy - find out about the recently launched scheme to help buyers in the capital

Help to Buy equity loans: am I eligible?

To be eligible for a Help to Buy loan, you need to be buying a new-build home and must also:

  • Have a deposit of at least 5%
  • Be purchasing a home priced £600,000 or less
  • Be buying a property you intend to live in most of the time
  • Not let out the property or use it as a second home

Find out more: understand the pros and cons of buying a new-build home

How do I pay back a Help to Buy equity loan?

When you come to pay back the equity loan, you pay a share of what the property is worth at that time, rather than its value when you purchased it. So, depending on whether your home rises or falls in value, you could end up paying back more or less than you borrowed.

While Help to Buy equity loans are interest-free for the first five years, after that you will have to pay a monthly admin fee, which starts at 1.75% of the loan. This charge will then rise every year by any increase in the Retail Prices Index plus 1%.

If you're not ready to buy just yet, you could open a Help to Buy Isa and benefit from a 25% government bonus (up to £3,000) on your savings when you come to buy a house.

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