What is a Help to Buy equity loan?
The government launched the Help to Buy scheme to make it easier for people with small deposits to buy their first property and for existing homeowners to move house.
Help to Buy equity loans are only available for new-build properties so, if you want a modern home, then a Help to Buy equity loan could be a good way to reduce the size of the deposit you need to save.
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Help to Buy equity loans are available to first-time buyers and existing homeowners in England who are looking to buy a new-build property.
The government will lend you up to 20% (or up to 40% in London) of the property’s value. You will need to put down a deposit of at least 5% and get a mortgage to cover at least 75% of the property’s value.
So, if you wanted to buy a house for £200,000 with a 5% deposit you would need:
- £10,000 deposit
- £150,000 mortgage loan
- £40,000 loan from the government.
Using an equity loan rather than going it alone has two key benefits: you will only need a 5% deposit and, as you’re only borrowing 75%, instead of up to 95%, you will be able to access better mortgage rates.
You could end up paying back more or less than you borrowed, depending on whether your home rises or falls in value. For example, if you take out a 20% equity loan to buy a property worth £200,000 - a loan of £40,000 - and when you come to sell, the property is worth £250,000, you'll have to repay £50,000 – 20% of the new value of your home.
- If you live in London, you can benefit from a larger equity loan than elsewhere in England. Find out more in our full London Help to Buy guide.
How do I get a Help to Buy equity loan?
To be eligible for a Help to Buy loan, you need to be looking for a new-build home and also must:
- have a deposit of at least 5%
- be looking to buy a home worth £600,000 or less
- be purchasing a property you intend to live in most of the time
- not let out the property or use it as a second home.
Go further: new-build homes – find out the advantages and disadvantages of buying a new-build property
Help to Buy: how to repay your equity loan
Although 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. It will then rise every year by any increase in the Retail Prices Index plus 1%.
Remember that the equity loan from the government will not decrease in size (unless you opt to repay part of it early).
So, over time, the cost of the admin fee could become pretty expensive, especially if inflation increases substantially. You will also be paying these fees in addition to your mortgage repayments.
You will need to repay the equity loan in full after 25 years, when your mortgage term finishes or when you sell your home – whichever happens first.
You will repay the market value of the loan at the time, rather than the same amount of cash that you were loaned. You can also choose to repay part of the loan early in chunks of either 10% or 20% of the total value.
Changes to Help to Buy equity loans from 2021
In the 2018 Autumn Budget, Chancellor Philip Hammond announced that the Help to Buy equity loans scheme will be changed from April 2021.
From 2021 until 2023, Help to Buy equity loans will only be available to first-time buyers, and regional property price caps will apply. These will be set at 1.5 times the current (autumn 2018) forecast regional average first-time buyer price, meaning the maximum property price you'll be able to take out a Help to Buy loan on will be:
- North East: £186,100
- North West: £224,400
- Yorkshire and the Humber: £228,100
- East Midlands: £261,900
- West Midlands: £255,600
- East of England: £407,400
- London: £600,000
- South East: £437,600
- South West: £349,000
There are currently no plans to extend the scheme beyond 2023.
Should I take out an equity loan?
If you’re interested in buying a new-build property, a Help to Buy equity loan is certainly worth considering. To apply for one, you need to contact your local Help to Buy agent.
Alternatively, there are plenty of other options you could look at, including ordinary mortgages and guarantor mortgages.
- You can learn about how the equivalent equity loan schemes work elsewhere in the UK in our guides on Help to Buy Scotland and Help to Buy Wales. Currently, Northern Ireland doesn't have an equity loan scheme running.
Is the scheme popular?
The Help to Buy equity loan scheme has been very popular with first-time buyers and home movers since its launch in 2013, though it has faced criticism in some quarters for driving up house prices.
Help to Buy in numbers
Correct as of date of publication.