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Aaron Evans
Aaron Evans

Help To Buy Equity Loan ##TOP##

Help to Buy is a government scheme designed to help first-time buyers in England buy their first home. The Help to Buy equity loan scheme, to give it its full name, is only available on new-build homes from developers registered with the scheme. There are also regional price limits on the homes that can be bought under the scheme. The final date for applying for a Help to Buy equity loan is 31 October 2022 as the scheme is due to end on 31 March 2023.

help to buy equity loan

The equity loan itself can be paid back in full or in part (as long as it covers a minimum 10% of the property value) at any time. You must fully pay back the equity loan if you sell your property, pay off your mortgage or come to the end of the equity loan term, which is typically 25 years. You stop paying interest once the loan is repaid in full.

The original Help to Buy equity loan scheme was replaced by a new scheme for 2021-23, after which the scheme is due to end. Homebuyers wanting to use the scheme have until 31 October 2022 to reserve a property and apply for an equity loan, a date set to hopefully allow sufficient time for the buying process to complete legally ahead of the final scheme end date of 31 March 2023.

Unlike the previous scheme, which was available to those taking their first step on to the property ladder and existing homeowners, the 2021-23 Help to Buy equity loan scheme is only available to first-time buyers.

In addition, while both versions of the scheme allow applicants to take an equity loan worth up to 20% of the property value (or 40% in London), Help to Buy 2021-23 introduced regional price caps, limiting how much the house that is being bought can cost. For example, buyers in London can use Help to Buy for new-build house purchases worth up to 600,000, while the maximum property value allowed for those buying in the East Midlands is 261,900.

As in England, homebuyers in Wales who can provide a 5% deposit can get an equity loan that will cover a maximum of 20% of the value of a new-build home and has a five-year interest-free period. The main differences are that the price cap is set at 250,000 across all of Wales and the scheme is still available to existing homeowners, as well as first-time buyers.

Since its launch in 2013, the Help to Buy equity loan scheme has helped over 355,000 homebuyers get a foot on the housing ladder, according to government data published in May 2022. Here are some reasons why Help to Buy might be the right option for you when looking to buy your first home.

Saving a deposit can take years, especially if you want to qualify for a low loan-to-value (LTV) mortgage in order to try to access the most competitive deals. With an equity loan, the Help to Buy scheme allows you to purchase a home with a smaller mortgage, at a lower LTV, even if you only have a 5% deposit.

If your home goes up in value, you will need to repay more than the government initially loaned you. For example, if you took out a 20% Help to Buy equity loan on a property worth 180,000, this loan would be worth 36,000. However, should you want to repay in full, and your house has risen in value to 200,000, you would have to pay back 40,000 (20% of 200,000).

After your five-year interest-free period ends, you will pay 1.75% interest in your sixth year of having the loan. This is not unreasonable compared with the rates you might pay on other loans, but by increasing in line with CPI inflation plus 2% each year after, there is the potential for it to rise quickly and significantly.

Mortgage deals for Help to Buy are usually more competitive than if you used your 5% deposit to take out a 95% LTV mortgage because the equity loan means you effectively have a larger deposit and can borrow at a lower LTV where rates are lower. However, if you were to compare a standard 75% LTV mortgage to a Help to Buy 75% LTV mortgage, you might find the Help to Buy mortgage has a slightly higher rate to reflect the added risk that, with an equity loan, you effectively have two loans against the property.

Negativity equity is when the market value of a property falls below the amount that is left to repay on a mortgage. But with Help to Buy, your equity loan could still be outstanding too. The major problems with negative equity are that it can make it hard to remortgage and represent a significant barrier if you want to sell up and move.

Help to Buy is a government scheme to help first-time buyers get a property with just a 5% deposit. You can borrow 20% of the purchase price (40% in London), interest-free for five years. You can apply to the scheme until 31 October 2022 and home purchases must be completed 31 March 2023.

Your interest will go up each year in April by the CPI, plus 2%. This is worked out by multiplying the loan amount (purchase price x equity loan percentage). The equity loan percentage will reduce if any part repayments are made.

The government has indicated that it will wean the property market off the scheme. It will need to ensure that developers continue to build new properties at the rates currently achieved, or better, if it is to meet its challenging ambition of creating 300,000 new homes per year of sufficient quality from the mid-2020s. The scheme may have achieved the short-term benefits it set out to, but its overall value for money will only be known when we can observe its longer-term effects on the property market and the net return, or cost, to the taxpayer when the very substantial portfolio of loans has been repaid.

Help-to-buy scheme equity loans help pay for a certain percentage of the property value instead of a set cash amount, meaning you might wind up paying back more money or less money than you borrowed, which depends on whether the value of your home increases or decreases.

A help-to-buy scheme equity loan is not all roses, however. There are definite downsides. One is that the scheme has been accused of inflating the prices of new homes, meaning it could be more difficult to build up equity as your property might now grow in value. If the property does grow in value, you could end up paying back more since the loan is for a percentage of the property value instead of a set cash amount.

Finding a mortgage on a help-to-buy property can also be challenging, especially because not all lenders cater to the scheme, which can become a problem if you re-mortgage in a few years. If you want to purchase an older property, Help to Buy will not help you, since it is only useful to purchase new-build homes.

To be eligible for the help-to-buy scheme, you must be purchasing a new-build property. You also must be a first-time homebuyer and have a deposit of at minimum 5%. Other conditions include that you are purchasing the property for less than the price cap in your region and you buy a property that you intend to live in the majority of the time. For Help to Buy, you cannot let out the property or use it as a second home, and you must take out a mortgage with a term of no more than 35 years.

You can also repay the help-to-buy equity loan by re-mortgaging. But remember: whether or not this is the best option for you will hinge on whether the payments ware manageable and if you are currently within your mortgage term.

Help to Buy was first introduced by the Government in 2013, with many people taking advantage of this scheme to purchase their first home. Once the equity loan reaches five years old, interest becomes payable, encouraging homeowners to consider taking action and repaying the loan before any interest becomes due. Wendi Coupland, an Associate and Executive in our Residential Conveyancing department, explains more here about the process of doing so.

Under the existing support scheme launched on 1st April 2021, first-time buyers could borrow up to 20% of the cost of a new build or 40% in London. You were required to pay at least 5% of the deposit towards the property and use a repayment mortgage for the remaining 75%. This loan was interest-free for the first five years, after which the interest fees start at 1.75%, increasing yearly based on the Retail Price Index.

If you purchased your home using a Help to Buy Equity Loan, you could repay this at any point after the date of completion of your purchase. You do not need to sell the property to repay the loan; you can repay it by re-mortgaging or using other sufficient funds. The Help to Buy Equity Loan will be repayable at the market value of your property at the time of repayment, and a valuation of your home will be required from an independent Royal Institute of Chartered Surveyors (RICS) surveyor.

Upon receipt of your valuation report, the organisation with which your Help to Buy Equity Loan is held, will use this to calculate the value of the loan and provide the figure required to repay the equity loan. This will need to be completed within five working days of the valuation date, and you will be responsible for the valuation fee.

Having your Solicitor in place as soon as possible is vital once you have decided to repay your equity loan. Once the valuation is complete, this is sent to your Solicitor and can take up to four weeks to be issued. The sooner you can provide details of your Solicitor to the Help to Buy organisation, the less chance there will be a delay.

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A home equity loan is a form of credit where your home is used as collateral to borrow money. You can use it to pay for major expenses, including education, medical bills, and home repairs. But, if you cannot pay back the loan, the lender could foreclose on your home.

Before taking out a home equity loan, be careful and consider the pros and cons. You should explore alternatives with a credit counselor that do not put your home at risk of a forced sale. If you are unable to make payments on time, you could end up losing your home. 041b061a72


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