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The Help to Buy Equity Loan Scheme was introduced by the government in 2013 to help first-time buyers purchase a home. The government scheme offers an interest-free loan for five years to buy a new build property.
Help to Buy Equity Loans has helped thousands of first-time buyers onto the property ladder and has been a key factor in the UK’s housing market recovery.
If you’re a first-time buyer and you’re looking to buy a property, then a Help to Buy government loan could help you get on the ladder. You'll need to be quick, as the current version of the scheme closes to new applicants in October 2022.
We’ve put together some information on how Help to Buy works, and how you could benefit from the scheme.
How does the Help to Buy Equity Loan Scheme work?
The Help to Buy Scheme is designed to help first-time buyers purchase a home. The scheme offers an interest-free loan for five years, which is available on properties worth up to £600,000, depending on where in the country you live.
There are regional price caps in place for the Help to Buy Scheme.
North East £186,100
North West £224,400
Yorkshire and the Humber £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
The loan is provided by the government and is available on new-build properties only. You’ll need to have a deposit of at least 5% of the property value, and you’ll need to take out a mortgage to cover the remaining amount.
Who is eligible for the Help to Buy Equity Loan Scheme?
To be eligible for the scheme, you must:
- be a first-time buyer
- have a deposit of at least 5% of the market value
- take out a mortgage to cover the remaining amount
- be able to afford the monthly payments
If you're buying with someone else, you will both need to meet the eligibility criteria.
The property must also be:
- a new-build
- sold by a Help to Buy registered homebuilder
- the only home you own and live in
What are the benefits of the Help to Buy Scheme?
The main benefit of the Help to Buy Scheme is that it allows you to purchase a property with a smaller deposit than you would normally need. The scheme also offers an interest-free loan for five years, which can make it more affordable in the short term.
Another benefit of Help to Buy is that it can help to boost the housing market by increasing demand for new-build properties. This can have a positive effect on the economy and create jobs in the construction industry.
How does a mortgage work with Help to Buy?
If you’re looking to buy a property with Help to Buy, you’ll need to take out a mortgage to cover the remaining amount. The mortgage will be in your name and you’ll be responsible for making the monthly repayments.
The interest-free loan from the government is available for five years, after which you’ll need to start paying interest on the loan. The interest rate will be set at 1.75% from year 6, increasing in line with inflation.
If you’re thinking of taking out a Help to Buy mortgage, it’s important to compare the rates and fees from different lenders to make sure you get the best deal.
What are the downsides of Help to Buy Equity Loans?
One of the main disadvantages is that you’ll need to start paying back the loan after five years. From the sixth year, the interest rate will be set at 1.75% and will increase each year in line with the Consumer Price Index (CPI) plus 2%. With rising inflation, this could make your monthly repayments more expensive in the long term.
Another downside is that you may be restricted to only purchasing a new-build property. This can limit your choice of properties and may mean you end up paying more for your home than if you were buying an existing property.
Finally, Help to Buy is only available in England. If you’re looking to buy a property in Scotland, Wales or Northern Ireland, you won’t be able to use the scheme.
If you’re thinking of using Help to Buy to purchase a property, it’s important to weigh up the pros and cons to make sure it’s the right decision for you.
How much can I borrow?
The maximum equity loan amount you can apply for depends on several factors:
Where you live - there are different price caps in place for different regions of the country
How much you can afford - you'll need to have a deposit of at least 5% of the property purchase price and be able to afford the monthly repayments set by your mortgage lender
The value of the property - the maximum loan amount is capped at 20% of the property value (40% in London)
What happens after 5 years?
Once the five-year interest-free period comes to an end, you’ll need to start paying interest on the loan. From the sixth year, the interest rate will be set at 1.75% and will be applied to the equity loan amount. This rate will increase each year in line with the Consumer Price Index (CPI) plus 2%.
You’ll have the option to repay the loan in full at any time, or you can continue paying the interest and keep the loan for the rest of the term. If you don’t think you’ll be able to afford the repayments after the interest-free period comes to an end, you should speak to your lender about your options. They may be able to offer you a different mortgage product that’s more affordable in the long term.
Help to Buy mortgages are available from a range of lenders, so it’s important to compare the rates and fees before you apply.
How much will I need for a deposit?
The minimum deposit you’ll need to put down is 5% of the property value.
The government will then provide an equity loan for up to 20% of the property value (40% in London). This means you’ll only need to take out a mortgage for the remaining 75% of the property value.
For example, if you’re looking to buy a property worth £200,000, you’ll need a deposit of £10,000. The government will then provide a loan for £40,000, which means you’ll only need to take out a mortgage for the remaining £150,000.
What houses qualify for Help to Buy?
In order to qualify for Help to Buy, the property you’re looking to purchase must meet certain criteria. The property must:
- Be a new-build home
- Have a purchase price of up to £600,000 (or up to £450,000 in London)
- Be your only home (you can’t have any other property in the UK or abroad)
- Be your main residence (you can’t rent it out)
If you’re looking to buy a property that doesn’t meet all of the above criteria, you won’t be able to use the scheme.
When does the Help to Buy Equity Loan Scheme end?
The Equity Loan Scheme will end on 31 March 2023 and close to new applications on 31 October 2022. This means that if you want to use the scheme, you’ll need to have completed your purchase before the end date.
If you’re in the process of buying a property and your completion date is after 31 March 2023, you will not be able to use the scheme. You may still be able to purchase your property with a standard mortgage, but you won’t be able to get an equity loan from the government.
If you’re not sure whether you’ll be able to use the Help to Buy scheme, it’s important to speak to your conveyancer or solicitor as soon as possible. They’ll be able to advise you on your options and help you to find a mortgage that’s right for you.
Speak to an expert
If you’re thinking of using the Help to Buy scheme, it’s important to speak to an expert before you make any decisions. At Echo Finance, we've helped thousands of first-time buyers to purchase their dream homes.
Our team of mortgage experts are on hand to help you every step of the way, from finding the right mortgage to completing the purchase. We can also help you to understand how the scheme works and answer any questions you have.
As a whole of market mortgage broker, we compare mortgages from 90+ lenders to find the perfect deal for you. We’ll also search the market for any special deals or incentives that could help to make your purchase more affordable.
To speak to one of our mortgage experts, please call us on 0800 093 4914 or make an enquiry online.
Find your local adviser
Frequently Asked Questions
Below you will find the answers to the questions we hear most often from Echo Finance customers:
A mortgage broker, or a mortgage advisor, is an intermediary who acts as a conduit between an aspiring borrower and a lender. It is their job to provide the mortgage applicant with impartial advice, help them choose the right product and arrange the deal with the lender.
Brokers provide services including advice on which type of mortgage to choose, providing access to exclusive rates through their lender contacts, and application support. Some can offer advice on all areas of the mortgage market, while others specialise in niche fields such as buy-to-let, bad credit, commercial finance, first-time buyers or self-employed borrowers.
People choose to apply for their mortgage through a broker because it can boost their chances of finding the right deal, while saving time and money in the long run.
- Residential mortgages: Everything from fixed-rate to tracker mortgages for first-time buyers, homemovers and remortgage borrowers
- Specialist mortgages: For borrowers who fall outside of standard lending criteria, including people with bad credit, self-employed professionals and more
- Later-life lending: Including advice on equity release, mortgages for pensioners and retirement interest only (RIO) mortgages
- Bridging & Commercial: We have specialist advisors on hand for commercial mortgages, bridging loans, development finance and more
- Insurance & Protection: Including life, home and critical illness cover for families and individuals, as well as landlord and business protection insurance
Echo Finance is regulated by the Financial Conduct Authority and is reviewed annually by an independent compliance company. All of our brokers and advisers hold industry-standard qualifications, such as CeMAP, CeRER and DipMap, where required.
We are committed to providing advice through the channels that best suit your needs. Our brokers can provide advice via phone, email, video and web chat from anywhere in the UK, but we also aim to offer face-to-face appointments for those who request them.
