The Help to Buy equity loan was first introduced in 2013, and has proved a huge success in helping hundreds of thousands of buyers get a leg up onto the property ladder.
But a new Help to Buy is replacing the current initiative this year - and there are a few fundamental changes you should be aware of.
The Help to Buy equity loan is a government funded initiative which aims to give financial support to non-homeowners who are looking to buy a new-build property.
The loan can be combined with your own savings and used as a deposit for the property.
Depending on where you live, the scheme allows you to borrow between 5% and a maximum of 20% (40% in London) of the property’s value.
This means that buyers will only need to save a minimum of 5% deposit, which will be combined with the 20% equity loan. A 75% mortgage covers the remaining cost of buying your home.
The initiative is in place to make the property ladder more accessible, and is specifically aimed at first-time buyers who may have otherwise struggled to raise the larger deposits that are becoming the norm in today’s market.
The property you purchase must be from a registered developer. Homes England have released new legal documentation for housing developers, and extended guidelines are being issued for building standards.
Under the new scheme, applicants will only be eligible for the equity loan if the property costs no more than 1.5 times the average first-time buyer property price in their area, and there are regional caps in place.
To be eligible for the Help to Buy equity loan 2021 - 2023, you’ll need to meet the following criteria:
The equity loan payments are interest only, so you do not reduce the amount you owe. For the first five years of borrowing you are not required to pay interest on it, and you will only be charged a £1 monthly management fee.
Payment requirements from year 6 include:
You must repay your equity loan in full at the end of your mortgage period or if you sell your home - whichever happens first. There is also the option to remortgage your property as a means to repay your equity loan early.
When you take out your equity loan, you will sign a legal agreement. If you breach any of the terms set out in the contract you will be asked to repay the loan in full.
The Help to Buy equity loan is available on specific new-build properties that have been developed by housebuilders who have a valid, current registration agreement with Homes England.
The scheme is available on a number of different properties including houses and flats, meaning that there are a range of potential properties to choose from - providing it is a new-build and the cost does not exceed the regional price cap.
Before you apply for an equity loan, ensure that it is a suitable option for your circumstances - consider seeking advice from a broker if you have any doubts.
If you decide to proceed, you can find your local Help to Buy agent to get the ball rolling.
When can I apply for the new Help to Buy equity loan?
Applications for the new scheme opened on Wednesday 16th December 2020, and funding will be available from 1st April 2021.
How long will the new Help to Buy equity loan scheme run for?
The new Help to Buy equity loan scheme is set to run between April 2021 and March 2023.
What happens if I applied for Help to Buy before the current scheme was replaced?
Applications for the current scheme closed on 15th December 2020. Borrowers who applied and were accepted before this date have until 31 March 2021 to reach legal completion on their home before the funding ends.
If you have concerns that you won’t complete before the deadline, speak to your homebuilder and conveyancer for advice.
Do I still qualify for a 20% equity loan if I have more than 5% deposit saved?
Yes, the minimum requirements are 5% deposit but there is no maximum deposit if you want to be considered for the 20% equity loan.
Can I apply for Help to Buy if I’ve been on a joint mortgage in the past?
No, the revised scheme is only available to first-time buyers. Even if you’ve been on a joint mortgage in the past, unfortunately you will no longer be eligible.
My spouse has had a mortgage in the past but I haven’t - can I get a Help to Buy loan?
If you are married or in a civil partnership, you must make a joint application to Help to Buy. If either party has owned a home or residential land now or in the past in the UK or abroad, you will not be eligible.
Can I get an equity loan if I have an interest-only or part-interest & part-repayment mortgage?
You can only be approved for a Help to Buy equity loan if you have a repayment mortgage, and it must be valid for the duration of the equity loan.
Can I sublet my property while I have a Help to Buy loan?
No, you may not rent out your home or purchase a second home when you’re taking advantage of the Help to Buy equity loan scheme.
If I’ve been using a Help to Buy ISA can I still use the new Help to Buy scheme?
Yes, you can use the savings in an existing Help to Buy ISA for a deposit. When it comes to buying property, ensure not to move the money from the ISA yourself - your solicitor and Help to Buy will handle the transfer of your funds, plus the government bonus, on your behalf.
What happens if the value of my house exceeds the regional cap when I sell it?
It doesn’t matter if your home increases to a value which exceeds the regional cap when it comes to selling up - this is only a factor on initial purchase of the property.
When can I start to repay my equity loan?
You are able to repay all or part of your equity loan at any time, including during the first five years, but a part payment must be at least 10% of what your home is worth at the time of repayment.
Bear in mind that every time you make a repayment, you will be required to cover the surveyor costs and associated admin fees so your property can be valued and Help to Buy can calculate how much you owe.
How much will I end up repaying?
The total equity loan amount you repay will depend on the value of your home at the point of repayment, rather than a set cash amount.
If the value of your home increases over time, so does the amount you owe on your equity loan. Similarly if it decreases in value, the amount you owe on your equity loan falls too.
For example, if you take out a 20% equity loan to buy a property that’s on the market for £200,000 (£40,000 equity loan) and the value of the property has increased to £280,000 when you come to sell, you will have to repay £56,000 - 20% of the new value of your home.
Can the Help to Buy equity loan be added to my mortgage or is it always a separate product?
There is the option to remortgage your property to pay off your equity loan, in which case the funds you repay Help to Buy will be added to your mortgage.
But a new Help to Buy is replacing the current initiative this year - and there are a few fundamental changes you should be aware of.
What is the current Help to Buy equity loan scheme?
The Help to Buy equity loan is a government funded initiative which aims to give financial support to non-homeowners who are looking to buy a new-build property.
The loan can be combined with your own savings and used as a deposit for the property.
Depending on where you live, the scheme allows you to borrow between 5% and a maximum of 20% (40% in London) of the property’s value.
This means that buyers will only need to save a minimum of 5% deposit, which will be combined with the 20% equity loan. A 75% mortgage covers the remaining cost of buying your home.
The initiative is in place to make the property ladder more accessible, and is specifically aimed at first-time buyers who may have otherwise struggled to raise the larger deposits that are becoming the norm in today’s market.
How will Help to Buy change in 2021?
While the current scheme is available to all new-build buyers who do not own another property, the new Help to Buy equity loan is only available to first-time buyers. This change has been implemented to ensure the scheme prioritises those who will benefit from it most.The property you purchase must be from a registered developer. Homes England have released new legal documentation for housing developers, and extended guidelines are being issued for building standards.
Under the new scheme, applicants will only be eligible for the equity loan if the property costs no more than 1.5 times the average first-time buyer property price in their area, and there are regional caps in place.
What are the Help to Buy equity loan 2021 - 2023 price caps?
Region | Maximum property price |
North East | £186,100 |
North West | £224,400 |
Yorkshire | £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 |
What is the new eligibility criteria for Help to Buy in 2021?
To be eligible for the Help to Buy equity loan 2021 - 2023, you’ll need to meet the following criteria:
- You must be a first-time buyer and you must sign a legal declaration to confirm this.
- If you’re applying for a joint mortgage, both parties must be first-time buyers.
- If you’re married or in a civil partnership, you must apply for a joint Help to Buy application.
- The property must be a new-build and within the relevant regional price cap.
- You must meet the government’s affordability criteria, which will take your monthly income and outgoings and estimated mortgage repayments into consideration.
How to repay your Help to Buy equity loan
The equity loan payments are interest only, so you do not reduce the amount you owe. For the first five years of borrowing you are not required to pay interest on it, and you will only be charged a £1 monthly management fee.
Payment requirements from year 6 include:
- £1 monthly management fee.
- An interest fee of 1.75% of the equity loan. The interest rate will rise each year in April in line with the Consumer Price Index (CPI), plus 1%.
- Continue to pay interest until your loan is repaid in full.
- Cover surveyor valuation fees and associated admin costs when making a repayment.
You must repay your equity loan in full at the end of your mortgage period or if you sell your home - whichever happens first. There is also the option to remortgage your property as a means to repay your equity loan early.
When you take out your equity loan, you will sign a legal agreement. If you breach any of the terms set out in the contract you will be asked to repay the loan in full.
What type of home can you purchase through Help to Buy?
The Help to Buy equity loan is available on specific new-build properties that have been developed by housebuilders who have a valid, current registration agreement with Homes England.
The scheme is available on a number of different properties including houses and flats, meaning that there are a range of potential properties to choose from - providing it is a new-build and the cost does not exceed the regional price cap.
Applying for the Help to Buy equity loan
Before you apply for an equity loan, ensure that it is a suitable option for your circumstances - consider seeking advice from a broker if you have any doubts.
If you decide to proceed, you can find your local Help to Buy agent to get the ball rolling.
Help to Buy Frequently Asked Questions
When can I apply for the new Help to Buy equity loan?
Applications for the new scheme opened on Wednesday 16th December 2020, and funding will be available from 1st April 2021.
How long will the new Help to Buy equity loan scheme run for?
The new Help to Buy equity loan scheme is set to run between April 2021 and March 2023.
What happens if I applied for Help to Buy before the current scheme was replaced?
Applications for the current scheme closed on 15th December 2020. Borrowers who applied and were accepted before this date have until 31 March 2021 to reach legal completion on their home before the funding ends.
If you have concerns that you won’t complete before the deadline, speak to your homebuilder and conveyancer for advice.
Do I still qualify for a 20% equity loan if I have more than 5% deposit saved?
Yes, the minimum requirements are 5% deposit but there is no maximum deposit if you want to be considered for the 20% equity loan.
Can I apply for Help to Buy if I’ve been on a joint mortgage in the past?
No, the revised scheme is only available to first-time buyers. Even if you’ve been on a joint mortgage in the past, unfortunately you will no longer be eligible.
My spouse has had a mortgage in the past but I haven’t - can I get a Help to Buy loan?
If you are married or in a civil partnership, you must make a joint application to Help to Buy. If either party has owned a home or residential land now or in the past in the UK or abroad, you will not be eligible.
Can I get an equity loan if I have an interest-only or part-interest & part-repayment mortgage?
You can only be approved for a Help to Buy equity loan if you have a repayment mortgage, and it must be valid for the duration of the equity loan.
Can I sublet my property while I have a Help to Buy loan?
No, you may not rent out your home or purchase a second home when you’re taking advantage of the Help to Buy equity loan scheme.
If I’ve been using a Help to Buy ISA can I still use the new Help to Buy scheme?
Yes, you can use the savings in an existing Help to Buy ISA for a deposit. When it comes to buying property, ensure not to move the money from the ISA yourself - your solicitor and Help to Buy will handle the transfer of your funds, plus the government bonus, on your behalf.
What happens if the value of my house exceeds the regional cap when I sell it?
It doesn’t matter if your home increases to a value which exceeds the regional cap when it comes to selling up - this is only a factor on initial purchase of the property.
When can I start to repay my equity loan?
You are able to repay all or part of your equity loan at any time, including during the first five years, but a part payment must be at least 10% of what your home is worth at the time of repayment.
Bear in mind that every time you make a repayment, you will be required to cover the surveyor costs and associated admin fees so your property can be valued and Help to Buy can calculate how much you owe.
How much will I end up repaying?
The total equity loan amount you repay will depend on the value of your home at the point of repayment, rather than a set cash amount.
If the value of your home increases over time, so does the amount you owe on your equity loan. Similarly if it decreases in value, the amount you owe on your equity loan falls too.
For example, if you take out a 20% equity loan to buy a property that’s on the market for £200,000 (£40,000 equity loan) and the value of the property has increased to £280,000 when you come to sell, you will have to repay £56,000 - 20% of the new value of your home.
Can the Help to Buy equity loan be added to my mortgage or is it always a separate product?
There is the option to remortgage your property to pay off your equity loan, in which case the funds you repay Help to Buy will be added to your mortgage.
First Time Buyers Expert Article by
Nicola Schutrups
(Managing Director)
The Mortgage Hut