This is a Government-backed scheme, designed to help people who have smaller deposits to buy a newly built home in England and Wales.
The scheme in England is managed by the Homes and Communities Agency (HCA) who are the national housing regeneration agency for England.
The scheme in Wales is managed by Help to Buy - Wales.
With Help to Buy - Equity Loan:
- you own 100% of the property
- it is available if you are buying your first home or moving home
- it is available on new build houses and flats/apartments
If you can answer yes to all of the following questions, and you can meet Leek United's current lending criteria, you may be able to buy a property under the scheme:
- is the property you want to buy a newly built property in England or Wales?
- is the property included in the scheme? If in doubt, speak to the builder or developer about whether they take part in the scheme.
- is the price of the property £600,000 or less if purchasing in England and £300,000 or less if purchasing in Wales?
- Are you taking your mortgage on a repayment basis (capital and interest)?
- Have you saved a deposit of at least 5% of the purchase price?
- Help to Buy: equity loan is offered by the Government to anyone looking to buy a newly built property.
- You need to have a deposit of at least 5% of the property’s value.
- The Government provides an equity loan of up to 20% of the property’s value (up to 40% of the property’s value in London). You then take a mortgage to cover the remaining value of the property, up to 75% (up to 55% in London).
- The equity loan is interest free for the first five years, after which you will be charged interest. You can start to pay back your equity loan at any time. Please note, the minimum amount you can pay back is 10% of the value of your property at the time the payment is made. While the loan is interest free for the first 5 years, an administration fee of £1.00 per month is payable.
- After 5 years the interest rate is 1.75% and rises each year by Retail Prices Index (RPI) + 1%.
This means you will have two ‘loans’ in place to buy your home;
- A mortgage with Leek United, and
- An equity loan from the Homes and Communities Agency (HCA) in England, or an equity loan from Help to Buy - Wales.
As the two ‘loans’ are managed separately by two different providers, you will pay two separate Direct Debit payments. So it’s important that you remember from year 6, you will also need to repay the interest on your equity loan monthly, as well as the monthly payment you have been making on your mortgage.
The example below shows how this works on a property worth £200,000.
The equity loan must be repaid after 25 years or earlier if you sell your home. You must repay the same percentage to the Government as the initial equity loan, i.e. if you took an equity loan of 20% to help buy your home, you would need to repay 20% of your homes value in the future when you came to either sell, or repay your equity loan. The diagrams below shows the amount you would repay on your equity loan which is linked to the future value of your home. Please note, the value of the equity loan could go up or down. After 25 years if you have not sold the property and the mortgage has not ended, you must repay the full amount borrowed. If you do not have the savings to pay this then you will have to the sell the property.
Before approaching a mortgage provider, you should ensure that you obtain the ‘Authority to Proceed’ from the Homes and Communities Agency (HCA) if your property is in England or Help to Buy - Wales if your property is in Wales as this will be required at the initial mortgage interview.