Help to Buy – A Handy Guide

What is a Help to Buy Equity Loan?

The Help to Buy Equity Loan is a government scheme to help people buy New Build properties up to £600,000. And it’s not just for 1st-time buyers, current homeowners can also apply for a Help to Buy Equity Loan as long as they own no other property.

How does it work?

The buyer will need a 5% deposit, the Government supply up to 20% of the cost of the new build, thus the buyer needing to apply for only a 75% mortgage. You will not be charged for the first five years.

What about Stamp Duty Tax?

The Equity Loan cannot be used to pay Stamp Duty costs. If you don’t have the cash available, Stamp Duty Tax may have to be paid out of your deposit

What happens after 5 years?

After 5 years the rules do change. This scheme is incentivised to pay the total back within 5 years.  After those 5 years, the buyer will have to pay back an extra 1.75% to the value of the loan. The owed amount is split between 12 to give a monthly fee.

“So at the start of year six in your case, assuming a purchase price of £300,000 with an equity loan of £60,000, the monthly fee would be £87.50. After year six, the percentage fee rises annually by the retail prices index (RPI) plus 1%. Assuming the RPI was 5% in every subsequent year, it would mean that the monthly fee would rise to £93 in year seven, then to £98.50, then to £104, followed by a fee of £110.50 in year 10″ (Guardian Online)

 What happens if I sell before I’ve paid off the loan?

If you sell before you’ve finished paying off your loan, you will have to return the same percentage of the sale proceeds you still owe. For example; If you take out a 20% Equity Loan and only manage to repay half of that, you will be required to give 10% of the property resale price.

For more information on Help to Buy Schemes click here