Help to Buy: Equity Loan

This is perhaps the most well-known scheme and is often referred to as simply Help to Buy.

What is the Help to Buy: Equity Loan?

This Help to Buy scheme offers a government loan to help both first-time buyersand home movers pay a larger deposit towards a new-build property (older properties do not qualify). The property must cost no more than £600,000 (£300,000 in Wales) and must be your only residence. You cannot rent it out or borrow more than 4.5 times your total household income.

You need a deposit of at least 5% from your own funds and the government will then lend you up to 20% of the property value (or 40% in London). This will give you a 25% deposit in total (or 45% in London).

How does the Help to Buy: Equity Loan work?

The best way to explain is with an example:

For a £400,000 property in London, you’d need to save a minimum £20,000 deposit (5% of the property’s value) to unlock a £160,000 loan from the government. This will give a total deposit of £180,000.

With the government loan, you’d only need a £220,000 mortgage compared to £380,000 without it, meaning your repayments will be far lower because, as a general rule, the bigger deposit, the lower the interest rate.

The maximum loan in England is £120,000 (or £240,000 in London). There is no minimum amount of equity loan – so in areas with low house prices the deposit you’d need would be low. For instance, if a flat cost £80,000, you would only need a deposit of £4,000 alongside a government loan of £16,000.

All this might sound great, but remember, you will need to pay the government back…

You can apply for the Equity Loan in its current form until April 2021. The scheme was originally meant to end in April 2021, but instead it will be watered down. From then until March 2023 (the new deadline), the scheme will be open to first-time buyers only and will include regional property price caps. The price cap in London, for example, will remain at £600,000, but in the less-costly north-east the cap will be £186,100.