Help to Buy equity loan -- is it for you?

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If you want to buy a new home, you should know about Help to Buy equity loan scheme, which lends up to 20% of the property's value, which is interest-free for the first 5 years. This article will tell you all you need to know about to Help to Buy equity loan scheme.

What is the Help to Buy equity loan scheme?

Help to Buy Equity Loans are governmental schemes to help you get onto the property ladder. It is available for those who want to purchase a new build property. As long as the new build property is worth under £600,000, you will get a loan up to 20% of the value of the new build. You are responsible for submitting at least a 5% deposit and arranging a mortgage for the remaining 75%.

You should be aware that as from April 1, 2021, the scheme will only be available for first-time buyers, and further restrictions will be introduced.

London Help to Buy

As London's property prices are significantly higher than the rest of the country, the government lends up to 40% of the property's value.

Therefore, if you can save for a 5% deposit and arrange a mortgage for the remaining 55%, you can buy a new build home in London.

What are the conditions?

There are some restrictions and conditions attached to Help to Buy. They include the following:

  • You will have to get a repayment mortgage
  • If the property's value is greater than the cap, you cannot buy that property.
  • You will not be able to rent out your current home and buy a new home with Help to Buy.
  • You cannot buy a Help to Buy property if you own land which has residential planning use.
  • As from April 2021, only first-time buyers will be eligible for the scheme.

Affect of coronavirus

Due to the delays in construction caused by the coronavirus outbreak, the government extended the deadline in which homes have to be finished.

New homes will now have to be finished being built by February 28 2021. Further, the completion deadline is March 31 2021.

If you had a reservation in place before June 30 2020, Homes England will assess your situation to see where you can be given an extension. Further, in this case, you will have until May 31, 2021, to complete the sale.

The new Help to Buy government scheme will replace the existing one and come into effect on April 1, 2021, and last till March 2023. Further, it is unlikely that there will be additional extensions.

How does Help to Buy work?

You need to understand the following regarding Help to Buy Equity Loan:

  • The government lends a percentage of the property's value. It is not a fixed amount
  • The amount you owe will increase if the value of the property goes up. Further, if the value decreases, so will your repayments.
  • You will have to pay £1 monthly management fee until you pay back the loan.
  • Once the interest-free years end, you will be charged 1.75% on the remaindering amount you owe as interest.
  • You will be repaying the interest and not the equity. You do not have to pay back the equity amount until you sell the property or turn 25, whichever occurs earlier.

How is the Help to Buy equity loan repaid?

It would be best to repay as much as you can in the first 5 years since they will be interest-free.

Further, you can staircase your repayments. This will reduce the ongoing costs you will incur after first five interest-free years. You will also have a more considerable share in the sale proceeds when you sell. However, you should know the following about staircasing:

  • Repayments can be made at any time.
  • Repayments have to be at least 10% of the current value of the property.
  • You will have to pay for an independent valuer each time you make a repayment.

Please see our article on selling a home bought with Help to Buy equity loan, for top tips on repaying the loan.

Can you remortgage a Help to Buy home?

Once the interest years end, you may want to remortgage whilst keeping the equity loan or get a new mortgage to repay the Help to Buy loan. If you choose the latter option, you will have many more options in the types of mortgages you can get.

If you want to remortgage with a Help to Buy equity loan, you should know the following:

  • You will have to pay an administration fee of £115 to Homes England.
  • Any increase in your first charge mortgage will have to be approved by an administrator from Homes England.
  • The amount you owe will depend on the most recent property valuation when you pay back the equity loan.

Please see our article for further information on selling a home bought with Help to Buy Equity Loan.

How can you apply for Help to Buy Equity Loan?

You will have to follow the following steps to apply for Help to Buy equity loan:

1. Look for a new build which is eligible and get in touch with the local Help to Buy Agent.

2. Pay the following fees:

2.1Reservation fee

2.2 5% deposit on exchange of contracts

2.3 Pay conveyancing and other associated costs on completion.

3. Fill out the Help to Buy Property Information Form. You can get this from house builders.

4. Reserve a home.

5. Send the signed Property Information Form and a copy of the builder's singed reservation form to the local Help to Buy Agent.

Please note that the information provided on this page:

  • Does not provide a complete or authoritative statement of the law;
  • Does not constitute legal advice by Net Lawman;
  • Does not create a contractual relationship;
  • Does not form part of any other advice, whether paid or free.
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