The government’s Help to Buy equity loan scheme has been running since 2013 and has assisted over 270,000 people step onto the property ladder.
From 16 December 2020 however, first-time buyers can start applying for the governments new Help to Buy equity loan scheme.
This means that eligible buyers will be able to reserve a new-build home though the scheme from mid-December 2020 and can receive the keys to move in as early as 1st April 2021.
The scheme this time will be only open to first-time buyers who are looking to purchase a new build property rather than also including home movers as with the previous scheme. It will run for two years with the aim being to help more struggling first time buyers to get onto the property ladder by assisting them with the deposit. With the impact of coronavirus in 2020 lenders have become more cautious and have pulled a number of higher loan to value mortgages, making it more challenging for first-time buyers to save up enough for a deposit.
How does it work?
Through the scheme, buyers need to pay a cash deposit of only 5%. A mortgage lender then provides a 75% loan to value (LTV) mortgage, and the government lends buyers up to a 20% (40% in London) equity loan towards the cost of the home for the shortfall.
As with the existing and new scheme, buyers do not have to pay any interest on the government loan for the first five years. After five years then Interest fees start at 1.75% and rise each year in April by the Consumer Prices Index (CPI) plus 2%. You will also need to pay a monthly management fee of £1 for the life of the equity loan.
An equity loan is secured against your property in the same way as a repayment mortgage. You must repay the equity loan when you sell the home, pay off your repayment mortgage or reach the end of your equity loan term. You can however repay all or part of the equity loan any time before then.
With the new scheme, new prices caps will also apply depending on the region. The price caps are 1.5 times the average first-time buyer price in each region. In the South West for example the maximum purchase price is £349,000 whereas in London this rises to £600,000.
The Help to Buy scheme is only available on qualifying new build properties and under the new scheme homebuilders selling Help to Buy homes are required to comply with more stringent conditions and must also give buyers a new home warranty before completion, ensuring that buyers are better protected and are only buying high quality properties.
In order to find out more about the scheme and to find out if you are eligible the government have produced a ‘homebuyers guide’ which can be accessed here: https://www.gov.uk/government/publications/help-to-buy-equity-loan-buyers-guide
With the introduction of the new help to buy scheme and reduction in smaller deposit mortgage deals it makes it more important than ever to seek professional mortgage advice to help ensure that you are finding the right mortgage deal for your circumstances.
Your home maybe repossessed if you do not keep up repayment on your mortgage.