Help to Buy

Equity Loan 2021-2023

As a first-time buyer searching for a newly built home, you may need a little financial help. With the government’s Help to Buy: Equity Loan scheme, buying your own home could become a reality.

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What is a Help to Buy: Equity Loan?

Help to Buy: Equity Loan is a loan from the government that you put towards the cost of buying a newly built home. Help to Buy aims to help first-time buyers to get on the property ladder. If you’re eligible for an equity loan, you can borrow up to 20% (40% if you’re in London) of the market value of a new home. When you take out an equity loan, you only pay interest on the amount you borrowed. You should be aware that the interest payments you make do not go towards repaying your equity loan. You cannot make monthly repayments to reduce your loan. But you can choose to repay it all or in part at any time. If you sell your home, you will need to repay all of your equity loan. You can only apply for Help to Buy if you reserve your new home with a Help to Buy registered homebuilder.

Example of a purchase with an equity loan scheme Cost/Percentage below;

Property purchase price

Your mortgage

Equity loan

Cash deposit

Property purchase price

Your mortgage

Equity loan

Cash deposit

Who provides the loan?

Help to Buy: Equity Loan is provided by the Homes and Communities Agency (trading as Homes England), a Government agency funded by the Ministry of Housing, Communities and Local Government

Am I eligible?

To be eligible for Help to Buy: Equity Loan 2021- 2023 you must be a first-time buyer. You and anyone you’re buying a home with must:

• not own a home or residential land now or in the past in the UK or abroad

• not have had any form of sharia mortgage finance.

All applications made by anyone that is married or in a civil partnership will have to be a joint application with their spouse or civil partner. You will need to sign a legal declaration to confirm that you are first-time buyers. Your conveyancer will explain this to you. When you buy your new build home with an equity loan, you must be able to afford the monthly fee and interest payments. You must tell us if you or anyone you are buying with has a connection with a homebuilder, as this could affect your eligibility for the equity loan scheme. If you have a large deposit and can secure a mortgage without the support of an equity loan, consider if an equity loan is right for you. Getting independent financial advice could help you make the right choice. Anyone aged 17 years or over who intends to live in a Help to Buy home, but is not a named homebuyer, must sign a occupier’s consent form. Signing the form gives up any legal rights over the property. It is strongly recommended that you get independent legal advice before signing the form.

How does it work?

Help to Buy can lend you a minimum of 5% and up to 20% (or up to 40% in London) of the market value of your newly built home. The amount you can spend on the home depends on where in England you buy it. Help to Buy: Equity Loan price caps – April 2021 to March 2023, Region Maximum property prices as follows:

*North East £186,100  *North West £224,400  *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 maximum property price is the full purchase price. You cannot change or negotiate this price. Your homebuilder will be able to confirm if the home you want to buy is within the price range. You must: pay a deposit of 5% of the purchase price of your new home at exchange of contracts and arrange a repayment mortgage of at least 25% of the purchase price of your new home. An equity loan is secured against your property in the same way a repayment mortgage is. The Help to Buy: Equity Loan scheme is not regulated by the Financial Conduct Authority (FCA).

Example of how much your deposit, equity loan and mortgage may be if you buy a new home worth £200,000:

Homebuyer’s 5% deposit: £10,000
20% Equity Loan: £40,000
75% mortgage from repayment mortgage lender: £150,000

For the first 5 years: • the equity loan is interest free • pay a £1 monthly management fee by Direct Debit.

From year 6:
• pay the £1 monthly management fee
• pay monthly interest of 1.75% of the equity loan amount you borrowed*
• interest rates will rise each year in April by the Consumer Price Index (CPI), plus 2%
• continue to pay interest until you repay your loan in full.

You must repay the equity loan when you pay off your repayment mortgage, sell your home or reach the end of your loan term, normally 25 years. You can pay off your equity loan in full any time before then or make part payments. Your first part repayment will need to be at least 10% of what your home is worth at that time.

*The amount of monthly interest you pay is worked out by multiplying:

1. the Help to Buy: Equity Loan amount (purchase price x equity loan percentage). The equity loan percentage will reduce following any part repayment

2. by the interest rate (in the first year this is 1.75% of the equity loan amount you borrowed). The interest rate increases every year by adding CPI plus 2%. The interest rate from the previous year is then used to work out the interest rate rise for the following year.

How to apply

1. Find and reserve your home. Registered homebuilders advertise Help to Buy homes for sale on their developments. You must reserve your home and pay the fee of no more than £500 before you can apply for an equity loan. This fee is fully refundable if you’re not eligible for an equity loan or you do not exchange contracts.

2. Get professional advice. Help to Buy agents will help you to apply for an equity loan if you’re eligible and can afford the equity loan on top of your other outgoings. You can find your Help to Buy agent at:
www.helptobuy.gov.uk/equity-loan/find-helptobuy-agent

3. You must check that the equity loan meets your needs and that you can afford to repay it. Consider seeking independent advice to help you understand your financial situation.

4. If your equity loan is approved, your Help to Buy agent will give your conveyancer and homebuilder permission to proceed with buying your home

5. Return your paperwork. Send your signed Property Information Form and a copy of the homebuilder’s signed reservation form to your Help to Buy agent.

6. Authority to Proceed. Your Help to Buy agent will check if you’re eligible for the scheme. The agent will use our Help to Buy eligibility calculator tool to check your monthly income and outgoings, including household bills and estimated mortgage repayments in the calculations. Your repayment mortgage should be less than 4.5 times your gross annual income.

7. Get Authority to Proceed. If your application is approved, the Help to Buy agent will give you the Authority to Proceed (ATP) to buy your new home. This is valid for 3 months.

8. Apply for a repayment mortgage. You are responsible for arranging your repayment mortgage. Only apply for your repayment mortgage once you have the Authority to Proceed from your Help to Buy agent. If you apply for a repayment mortgage first and are not eligible to apply for Help to Buy, you may lose money. Your credit rating may also be affected if the mortgage lender has carried out a credit check on you.

9. Get the conveyancer’s pack. When you have the Authority to Proceed, your conveyancer will receive legal guidance and forms to complete. Return these to your Help to Buy agent so you can buy your home. Your conveyancer is responsible for explaining the legal information to you. Please note that conveyancing is not regulated by the Financial Conduct Authority

All figures shown are taken from The Homebuyers Guide Help to Buy: Equity Loan guide; for further information please see: https://www.helptobuy.gov.uk/
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Terence Richard Humphreys, trading as Bespoke Mortgages is an Appointed Representative of The Right Mortgage Ltd which is authorised and regulated by the Financial Conduct Authority