Help to Buy was first launched in 2013 with the intention of giving first-time buyers a better chance of buying their own home.
As the scheme moved through the years, it was made available to existing homeowners, too, helping thousands more people purchase a property.
Now, though, Help to Buy has gone full circle and the latest incumbent of the scheme is available only to first-time buyers.
There are other changes, too, and we’ll be outlining everything you need to know about the new Help to Buy scheme here…
What is a Help to Buy equity loan
The Help to Buy equity loan scheme sees the government lend first-time buyers in England a portion of their deposit to buy a home.
The scheme is only open to those buyers purchasing a new-build property in England.
A Help to Buy equity loan covers 20% of a buyer’s deposit (40% in London), with the buyer themselves putting forward 5% to make 25% (45% in London) in total.
The new Help to Buy equity loan scheme explained
The latest version of the Help to Buy equity loan scheme opened for applications in December, with first-time buyers able to move into their properties from April 1, 2021.
While the previous version of Help to Buy, which is now closed, was available for existing homeowners, the new scheme is limited to first-time buyers in England. The key points of the new scheme are:
• Buyers can apply for a 20% equity loan (40% in London)
• Buyers must lodge a 5% deposit alongside their equity loan
• The rest of the property’s purchase price is made up of a mortgage
• The equity loan is interest free for five years
• From the sixth year, buyers are charged 1.75% interest
• From the seventh year onwards, the interest rate increases by the Consumer Price Index (CPI) plus 2% each year
• The equity loan must be repaid within 25 years, or earlier if the property is sold
• The amount paid back is equal to 20% (or 40% for Londoners) of the property’s value at the time
One other major change to the new scheme is the introduction of price caps for each region of England.
The price caps are set at 1.5 times the average first-time buyer purchase price for each region.
That means the maximum purchase price for buyers in London, for example, is £600,000, while in the West Midlands it is £255,600.
The other regional price caps are:
• North East England, £186,100
• North West England, £224,400
• Yorkshire and the Humber, £228,100
• East Midlands, £261,900
• East of England, £407,400
• South East, £437,600
• South West, £349,000
Help to Buy equity loan eligibility
In order to be eligible for the new Help to Buy scheme you must:
• Be a first-time buyer and not have owned any property previously in the UK or abroad
• Be purchasing a new-build home within your area’s regional price cap
Paying back your Help to Buy equity loan
You must pay back your Help to Buy equity loan by the end of the term, which is 25 years, or if you sell your home before then.
You can also pay down your equity loan at any time, but you must repay at least 10% each time you do.
When paying down your loan, the amount payable will be based on your property’s current value – not what you paid for it.
That means you could end up paying back more, or less, depending on whether your property has increased or reduced in value. For example:
• You buy a property for £200,000 with a 5% deposit and a 20% equity loan of £40,000
• After four years, you want to pay off 10% of your equity loan
• Your property is valued at £250,000
• Your 20% equity loan is now worth £50,000
• Paying off 10% will cost you £25,000
Help to Buy equity loan pros and cons
Whether a Help to Buy equity loan is right for you will very much depend on your personal circumstances.
However, there are some general pros and cons of the scheme you should consider:
Pros of Help to Buy equity loans
• The scheme enables first-time buyers who wouldn’t normally be able to purchase a home to do so
• First-time buyers need to only save a 5% deposit, meaning they could buy faster than if they had to save the traditional 10% deposit
• The equity loan is interest-free for five years
• Having a deposit of 25% through your own 5% contribution and an equity loan means you could access better mortgage rates as your loan-to-value will be 75%
Cons of Help to Buy equity loans
• You have to pay interest on the equity loan after five years and this rises each year thereafter
• Help to Buy equity loans are only available for new-build homes
• If your property rises in value, paying back your equity loan will cost you more
• Help to Buy mortgages are only available through certain lenders
Help to Buy in Scotland and Wales
Help to Buy equity loans are only available to buyers in England, with Scotland and Wales operating their own schemes.
Help to Buy equity loans in Scotland
The Help to Buy (Scotland) Affordable New Build scheme is open to first-time buyers and existing homeowners. The details of the scheme are:
• The Scottish government will provide you with a 15% shared equity loan, meaning you fund a minimum of 85% of the property’s purchase price through a mortgage and your own deposit
• The maximum purchase price for a new-build home under the scheme is £200,000
• You can pay down the shared equity loan in 5% increments
• You cannot rent out your home
Help to Buy Wales equity loans
Help to Buy - Wales is open to existing homeowners and first-time buyers. The details of the scheme are:
• The Welsh government will provide a 20% equity loan, while you fund the remaining 80% through a minimum 5% deposit and a repayment mortgage
• The maximum purchase price under the scheme is £300,000
• You can pay down the equity loan in 5% increments
• You cannot rent out your home
As well as Help to Buy, there are many other things millennials can do to get on the property ladder – our guide outlines the options available.
If you are thinking about taking out a Help to Buy equity loan under the new scheme, you’ll be buying a new-build property – we’ve explained everything you need to know about new-builds and what you can expect when buying one.
Finally, your first property purchase will need a mortgage, so take a look at our guide to finance for first-time buyers.