There are many government funding programmes, the Help to Buy Equity Loan Scheme is one that can be recommended to help first-time buyers in England to get on the property ladder. It is, in effect, a loan from the Government that is put towards the cost of buying a newly built home.

The Help to Buy Equity Loan Scheme helps first-time buyers in England get a property with just a 5% deposit. It is possible to borrow 20% of the purchase price (40% in London), interest free for five years. This scheme is currently available to home movers as well as first-time buyers, but this changes from 1st April 2021, when the scheme will only be eligible for first-time buyers.  New applications for the scheme opened from 16 December 2020 and will run until 31 March 2023.

This guide will help future homeowners to understand how this scheme can help them and how similar schemes work in the different countries of the UK.

How does the Help to Buy Equity Loan Scheme work?

The Government’s Help to Buy Equity Loan scheme is designed to help those struggling to save for a deposit for a home to get on to the housing ladder in England. It is a scheme particularly well-suited for young professionals earning a reasonable salary with minimal savings, who need the scheme to help with a deposit.  They could in the future remortgage or sell up.

The required criteria for eligibility for the scheme are outlined below:

1. The scheme is eligible for home movers and first-time buyers until 31st March 2021

 2. From 1st April 2021 the scheme is only eligible for first-time buyers

This means:

  • Someone who’s never owned a property at any point in the past
  • Someone who’s never done so whether in the UK or abroad
  • If buying with a partner, they must be a first-time buyer too

3. Help to Buy equity loans can only be used to purchase new-build homes

This means, it is not possible to use the equity loan to purchase a home that has already been lived in.

4. Homes must be bought from a home builder registered for Help to Buy: Equity Loan

This means the equity loan will not be available on all new builds. First-time homebuyers can find which homes are available in their area through their local Help to Buy agent.

5. The loan must be used to buy a main residence It cannot be used to buy a second home or a buy-to-let property.

6. The maximum property price depends on where future homeowners are buying

Regional price caps restrict the value of the property and the difference between the two ends of the scale is substantial. In London, for example, a property can be worth up to £600,000, while in the North East the maximum property price is £186,100.

A breakdown of the regional price caps from highest to lowest

 

Region Maximum Property Price
North East £186,000
North West £224,000
Yorkshire and the Humber £228,100
East Midlands £261,900
West Midlands £255,600
East of England £407,400
London £600,000
South East £437,600
South West £349,000

 

The Help to Buy scheme cannot be used to purchase a property above these limits.

7. A deposit of at least 5% of the purchase price is required

It is possible to borrow 20% (40% in London) of the purchase price. This amount is interest free for five years. What the equity loan is doing is essentially ‘topping up’ the deposit – the aim being to give access to cheaper mortgage rates.  The rest can be borrowed (up to 75%, or 55% if residing in London) from a mortgage lender, on a repayment basis.

This scheme is a stricter lending capacity than other schemes as there is an additional calculator applied.

For first-time buyers the equity loan, the deposit saved, and the repayment mortgage cover the total cost of buying their newly built home.

When taking out an equity loan, the home buyer agrees to repay it in full, plus interest and management fees.

For information on how to repay the Help to Buy Equity Loan Scheme, visit the Government’s homebuyers’ guide.

 National Differences

The Help to Buy Equity Loan Scheme is available in England only.  See the links below for similar schemes elsewhere in the UK:

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.