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Help to Buy Equity Loan: What to Know!

The government has pledged to double the housing budget to £2billion to fund the building of new houses across the country. 400,000 is the number of homes promised to be built by 2020. The number of new homes which have been registered to be built is at its highest since the housing crash and 156,140 new homes were built in 2015, the highest number since 2007. Detached homes have continued to resurrect and the number of detached homes is the highest it has been for more than a decade; whilst semi-detached homes are at their highest level; in more than 20 years.

With housing prices considerably unaffordable for the younger generation and competition and demand rife, the ability for young first time buyers to climb onto the property ladder is dwindling. However, the government had pledged to rectify the situation and the Help to Buy ISA is one way of doing so. However, a lot of people are not familiar with Help to Buy Equity Loan.

Help to Buy Equity Loan: What to know!

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Image credit: helptobuy.gov.uk

What is it?

Unlike the Help to Buy ISA which is only available for first time buyers and has a fixed house price for inside and outside of London, the equity loan is where the government loans you 20% of the purchase price in England and up to 40% in London. The catch – it has to be a new-build property.

The Help to Buy scheme was developed to make it easier and more flexible for people who can only gather a small deposit to buy a property. The equity loan, though restricted on new-builds, is open to everyone; both first time buyers and current homeowners.

How does the equity loan work?

You will need to put down a deposit of at least 5%, in order to secure the 20% loan from the government. You must also be able to arrange a mortgage of at least 75% of the property’s value.
One thing to consider is that the government has increased the upper limit for the loan which gives buyers within Greater London a larger percentage to borrow; up to 40% and with 55% mortgage to cover the remaining balance.

As an example from gov.uk:

help-to-buy-equity-loan (2)help-to-buy-equity-loan (1)

Who is eligible?

To be eligible for the Help to Buyer Equity Loan, you must be looking to buy a new-build and you can be a first-time buyer or current homeowner. You will need a 5% deposit and the property value must be less than £600,000. The property you are purchasing must be with an intent to live in the majority of your time and it cannot be let out or used as a second home.

The benefits:

Unlike most mortgage rates where you need to borrow up to 95%, the equity loan enables you to borrow only 75%, with a 5% deposit. The rates for mortgages will be far better to pay and according to governmental statistics, 62,569 properties were bought using the Help to Buy equity loan in the scheme’s first 30 months. And what’s more, the equity loan is helping first time buyers secure a property and statistics have shown 81% to have used the loan were first time buyers.

The terms and conditions:

The equity loan is for a maximum of 25 years, or before if the property is sold or the mortgage is paid off.

Though the loan is interest-free for the first five years, there is a management fee of £1 month after the date of purchase. After the fifth year, a fee of 1.75% is payable and will rise according to inflation plus 1%. One thing to remember is that the loan does not decrease in size; so effectively over time the cost of the admin fee will be extremely expensive, coupled with inflation. You can also choose to pay off the loan in early chunks of either 10% or 20% of the total value.

Who offers the loan?

Aldermore, Bank of Scotland, Barclays, Halifax, Leeds, Lloyds, Nationwide, NatWest, Royal Bank of Scotland, Santander, Teachers and TSB are some of the most popular choices for prospective homeowners to opt for when choosing the Help to Buy equity loan.

housing-development

Image credit: Alan Walker/commons.wikipedia/Geograph

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