The governments help to buy scheme was launched in 2013 to stimulate the housing market by helping first-time buyers and home movers purchase a new build property with a smaller deposit of 5%, and the government will provide an equity loan of up to 20% of the property’s value or 40% if the property is located in London.
What is an equity loan?
The government through the help to buy scheme will provide you with a loan which you have to use as part of your deposit to buy a property.
Let’s assume the property is based outside of London, so therefore you can get an equity loan of up to 20% of the property value, so if the property is valued at £300,000, you could get an equity loan of £60,000.
If the property was based in London and valued at £450,000, you could get an equity loan of up to £180,000.
Please note that the Help to buy scheme is only available on properties valued up to £600,000.
What payments do I have to make for this equity loan?
There are no payments required on this loan for the first 5 years.
In year 6 you will start to make payments to cover the interest you are being charged. The interest rate in year 6 is 1.75%.
In year 7 and onwards the initial rate of 1.75% will rise by the Retail Price Index plus 1%.
The payments that you make are ‘interest only’ payments and you are not paying off the capital you initially borrowed.
Let’s take an example if the property is valued at £300,000. You put down a deposit of 5% = £15,000. You get an equity loan for £60,000 and then a mortgage for the remaining to purchase the property. The payments on the equity loan of £60,000 in Year 6 will be £87.50 per month = £1050 over the year.
How do I repay this equity loan?
You can repay this loan in 3 ways:
When you sell the property – Please note that the equity loan balance i.e. 20% will be linked to the current sale value.
Remortgage the property. There may be the potential in the future to remortgage and raise capital to repay this loan.
You can make lump sum repayments of 10% at a time to clear the debt.
Need a Help to Buy Mortgage advice?
If you would like help to buy mortgage with bad credit advice to see what options you have available we, at The Money Hub, would be happy to help you. If you complete the above enquiry form one of our Help to Buy advisers will give you a call to discuss your options or please give us a call.