Help to buy is ending, when do I need to apply?
What is Help-To-Buy?
Help to buy is an ‘equity loan’ of up to 20% of the property value outside of London and up to 40% in London. The loan is issued by the government to first time buyers looking to purchase a new build property, with as little as 5% deposit (Other T’s & Cs apply)
What is an equity loan?
An equity loan is designed to help borrowers with a smaller deposit (as little as 5% of the open market value) to get on the ladder and in some cases, purchase a higher value property than they may have been able to with no help.
£300K purchase price
£60K equity loan
In the above example the buyer has an extra £60K towards their deposit, which in some cases could get you better mortgage terms than you would’ve been offered with 5% alone and potentially, a more attractive property.
- You must be a first-time buyer
- You must have deposit of at least 5% of the purchase price
- You must be purchasing a new-build property
- You must be able to afford the repayments on the equity loan, your mortgage, and any other outgoings
- You must arrange a mortgage of at least 25% of the purchase price
How is it paid back?
For the first 5 years of the equity loan there are no fees payable. After year 5, you are required to pay monthly interest on the loan at a rate of 1.75% per annum and the rate of interest increases each year.
You can pay the equity loan off in full (potentially by remortgaging if your circumstances allow) OR pay it off when you sell the property. Bear in mind that the cost of paying off the equity loan will increase in line with value of the property. For example, if the property value has increased to £350K from £300K, the equity loan payable will be £70K (20% of £350K)
When does it end / what will replace it?
Help to buy is due to end forever on the 31st March 2023, but if you’re looking at purchasing a new build property and are interested in using help to buy, your application will need to go in before 6PM on the 31st October 2022 (which has recently been brought forward). As it stands the government have not announced a replacement for help to buy, but we have started to see new 3rd party companies join the equity loan market, although it’s still early days.
Sam Mason – 5th May 2022
(Other T’s & C’s apply for help to buy including lending from mortgage providers being capped at 4.5X your annual salary, maximum purchase prices depending on the area and maximum income limits – you can speak to an independent mortgage broker if you would like more information on the scheme and you can find more information here – https://www.gov.uk/help-to-buy-equity-loan )