What is Help to Buy: Equity Loan and how does it work?

News at Waterfords | 11/03/2022

What is Help to Buy: Equity Loan and how does it work?

If you are keen to get onto the property ladder in England but struggling to save a big enough deposit then The Help to Buy: Equity Loan scheme could be for you.

Waterfords Estate Agents in Camberley, Chobham, Fleet and Yateley take you through the Help to Buy: Equity Loan scheme in this article. If you have any questions at all then please get in touch with our New Homes Consultant, Elise Griffin, who would be delighted to help.

What is Help to Buy?

Help to Buy is a government scheme that helps first-time buyers get onto the property ladder with a 5% deposit.

It’s available on new-build homes, which can come at a premium cost. But who doesn’t love buying something new and shiny? The property must be from a Help to Buy-registered builder.

Help to Buy got a revamp in early 2021. Unlike the previous equity loan scheme, which was available to all buyers, the current version is only open to first-time buyers. 

Regional property price caps have also been introduced, which we explain fully below. The current scheme will run until March 2023.

To be eligible you need to:

  • be over 18 years old
  • be a first-time buyer. You cannot have owned or inherited a property or land anywhere in the world previously
  • have not had any form of Sharia mortgage finance.

If you’re buying a property with someone else, you must both be first-time buyers.

Help to Buy: Equity Loan is one of a number of schemes available to help you buy a home. Others include Shared Ownership, where you buy a share of a home and pay rent on the rest.


How does Help to Buy work?

With Help to Buy, the government loans you up to 20% of the property value (rising to 40% in London). You pay a 5% deposit and then take out a mortgage to cover the rest.

The equity loan is interest-free for the first 5 years. After that, you’ll start paying interest at 1.75% in year 6 and more each year after. The amount rises each year in line with inflation.

You have 25 years to repay it unless you sell up before then. If you do, that’s when you’ll need to repay the loan. To avoid paying interest on the loan, it’s best to pay it off within the first 5 years. 

When weighing up your decision, it’s important to remember that the equity loan amount changes in line with the value of the home. 

So, for example, if the property value has risen by 10% at the point you sell it or after 25 years (whichever comes first), you’ll need to pay back more money to settle the loan. If the value falls, you’ll pay back less.

Help to Buy price caps

The following shows the regional price limits for Help to Buy properties in England:

  • East: £407,400
  • East Midlands: £261,900
  • London: £600,000
  • North-east: £186,100
  • North-west: £224,400
  • South-east: £437,000
  • South-west: £349,000
  • West Midlands: £255,600
  • Yorkshire and the Humber: £228,100


Help to Buy pros and cons

The pros:

  • You only need a small deposit, so could get onto the property ladder sooner 
  • You could get a lower mortgage rate
  • Your monthly costs for the first 5 years are likely to be lower than if you were buying a property without the scheme

The cons:

  • The scheme is restricted to new-build homes 
  • Not all lenders offer mortgages to people buying a Help to Buy property. But many big names are part of the scheme
  • If your property value goes up, so too does your equity loan repayment amount


Waterfords New Homes can help

View all new build homes for sale with Waterfords Estate Agents in the Camberley, Chobham, Fleet and Yateley area. If you can’t find your dream new build home in our current offering, please get in touch to register your interest. We have many up-and-coming developments that we can give you an exclusive sneak peek preview of! These aren’t available to the public just yet, so get in touch to have access to the best plots before they are released…

Contact our New Homes Consultant, Elise Griffin, on 01276 903141 or email lnh@waterfords.co.uk


*This article is intended as a guide only and was correct to the best of our knowledge in March 2022. For the most up to date information on affordable home ownership schemes, visit gov.uk