Help to Buy celebrates fifth birthday

Help to Buy celebrates fifth birthday
Nearly 145,000 people have bought properties using Help to Buy equity loans since the scheme was launched five years ago.

More than four out of every five Help to Buy equity loan property purchases have been made by first-time buyers and the average price of a property bought was £243,818.

The Help to Buy equity loan scheme was introduced in April 2013 to help those with small deposits buy a new home. It is due to run until 2021, so there's still plenty of time to take advantage.

How Help to Buy works

Under the scheme, homebuyers only need to put down a 5% deposit and the government will provide a 20% equity loan interest-free for the first five years, rising to 40% for buyers in the capital.

That means if you're buying outside the capital, you only need a mortgage for 75% of the property value, or 55% if you're buying in London.

The Help to Buy equity loan can only be used to purchase new build properties costing up to £600,000. So, the maximum equity loan available if you're buying outside London is £120,000 (20% of £600,000), or £240,000 if buying in London (40% of £600,000).

The maximum equity loan in London was only increased from 20% to 40% from February 2016. Between then and September 2017, 4,517 property purchases were made in the capital with an equity loan higher than 20%. The average price of a property bought using the scheme in London during this period was £394,748.

Loan interest

Thousands of people who signed up to the Help to Buy equity loan scheme at launch five years ago will soon start paying interest on their loans.

This will initially be charged at a rate of 1.75% and will increase every year by the rate of inflation as measured by the Retail Price Index (RPI) plus another 1%.  The cost on equity loans will only be to cover interest on the loan, not the capital amount which would be repayable when you sell your home.

However, you can pay off some or all of the equity loan sooner if you want to and more borrowers may be triggered to consider this option when interest becomes chargeable on their equity loan. The amount repayable will be based on the current market value of the property, so homeowners will need to get an independent valuation to accurately calculate 20% of the property value now.

As a result, if the property has increased in value since you bought it, the government will benefit from a proportion of that house price growth too.  However, if your home has fallen in value, you'll pay back a smaller amount than you originally borrowed.

Mortgage rates are very competitive at the moment, so it may offer those that can afford to take on a bigger mortgage the chance to pay off their equity loan entirely.  

We have partnered with L & C Mortgages the UK's largest fee free mortgage broker. You will be able to get expert advice at the end of a phone when it suits you. Their expert advisers are on hand 7 days a week and will manage a full search of the mortgage market so you don't have to.

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