Help to Buy: Equity Loan, Explained

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How does Help to Buy: Equity Loan work?

Help to Buy: Equity Loan offers first time buyers an equity loan to enable them to purchase their homes. The property needs to be a new build registered with the scheme to qualify. The amount you borrow can be between 5% and 20% of the purchase price, or up to 40% in London.   

This loan will need to be paid back, but there are several features that distinguish it from other forms of borrowing. Firstly, you don’t pay interest or fees for the first 5 years. After this point, you will begin making interest only payments that will not reduce the amount you owe. However, you can make further payments at any point if you want to. For further information about what to expect after 5 years, don’t hesitate to contact your mortgage advisor.   

For example… 

  • Let’s say the cost of your new home is £200,000. 
  • You’ll need to save up 5% of this sum, so £10,000. 
  • The government will provide a 20% equity loan – in this case £40,000. 
  • You will need to get a mortgage to cover the remaining 75% or £150,000. 

Paying back your Help to Buy: Equity Loan.

If you don’t want to pay any fees on this loan, you’ll need to pay it back within 5 years. During this initial period, you won’t be charged any interest. For more information about the fees you’ll be charged after 5 years, feel free to speak to your mortgage advisor. 

You’ll need to pay the equity loan back by 25 years at the latest, or if you sell your property. This is an equity loan, so that means the government technically own 20% of it. As a result, you’ll have to return 20% of the sale price – even if it has increased in value. Equally, though, you’ll owe the government less if house prices drop. 

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Emma Jones
Emma Jones
Emma began her career in Lloyds Banking Group, first in the unsecured & secured loans department at Halifax and later as a mortgage advisor at Lloyds. During 9 years in these roles and a further 2 years at Yorkshire Building Society, Emma was able to observe the impact of the recession, and how the banks let their customers down by denying loans and mortgages. Wanting to be a driving force for change, she stepped into a market advice role where she has been able to help clients when others couldn’t. Identifying a gap in the mortgage space, Emma went on to establish When the Bank Says No. As a keen property investor, she has been the focus of features in publications including The Sunday Times and This is Money. Emma’s greatest joy is overcoming the low expectations of their customers, many of whom have all but given up on getting a mortgage due. One thing Emma has learned through her own personal struggles is every client must be treated like a human and understood better by advisors and lenders in the industry. “We all have to navigate life events which can ultimately impact your financial status. It shouldn’t mean dreams of homeownership or business growth should have the breaks applied”. Emma and her team’s passion for helping people overcome the challenges they may face when applying for a mortgage have fuelled the success of When the Bank Says No.

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