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Help to buy: Equity loan (2021-2023)

Buyers   |   May 14, 2021   |   twentytwo

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This year the government has put in places a few schemes to help first time buyers. The latest Help to Buy: Equity Loan Scheme is going to run until the end of 2023.

What is a Help to Buy scheme? 

The Help to Buy scheme was originally set up in 2013 and allowed first time buyers and home movers to purchase a property with a 5% deposit.

Then buyers were able to borrow a loan from the government – 20% of the property’s value and take out the remaining in a mortgage.

From 2013 to the scheme finishing in September 2020, many homes in England were purchased with 82% of them being first time buyers.

What is the new Help to Buy: Equity Loan? 

The Help to Buy: Equity Loan that came into effect this year differs from the last as it is only for first time buyers in England and there are property price caps. For the East of England, the cap is £407,400.

Additionally, this is for new-build homes and the homebuilder must be registered for Help to Buy: Equity Loan.

How does the scheme work?

The amount borrowed is determined by the market value of your home when you buy it. No interest is paid on the equity loan in the first 5 years, you only start to pay interest in year 6.

The equity loan does need to be repaid in full after 25 years, this can be when you sell your home or when your mortgage term finishes. Paying 10% or 20% of the property’s total value in one go is also available if you’d like to repay a chunk.

Things to keep in mind

Since the loan is for a percentage of the property price, not the set cash value the amount repaid will be the market value at the time.

This means the amount owed on your equity loan can rise if the market value of your home does. However, if the value falls the amount of your equity loan will decrease too.

Before applying 

You need to ensure you have funds for a reserve fee, 5% deposit and additional fees on completion like legal fees, mortgage fees or others.

To view every region’s cap and get full details on how paying back the equity loan works, visit the Help to Buy website.

If you are unsure if a Help to Buy: Equity Loan is for you, we highly recommend seeking advice so you can understand your financial situation.

The team at Wright & Co have the local knowledge and experience to help you with your property purchase. If you are interested in buying in Hertfordshire, Essex or surrounding areas, don’t hesitate to get in touch.

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