Many of you may be aware of the previous Help to Buy scheme, well the good news is another is on it’s way, aimed specifically for first-time buyers. The scheme allows successful applicants to apply now for an equity loan and use the scheme to buy their new-build home on or after 1 April 2021.

The Help to Buy scheme is part of a larger policy helping people into homes through equity loans for first-time buyers, shared ownership and a £12 Billion investment in ‘affordable housing’ is aimed at helping the first-time buyer into the housing market whilst supporting the housebuilding sector during this particularly difficult time.

The way the scheme will work is relatively simple. First-time buyers that wish to buy a new-build home will be able to apply for an Equity Loan from the government for up to 20% of the home’s value (40% in London). The home-buyer then pays a deposit of 5% or more, with the remainder being covered by a mortgage of 25% or more of the value of the new home (55% in London).

The home that you buy must:

  • be a new build
  • have a purchase price of up to £600,000 in England (or £300,000 in Wales)
  • be the only property you own
  • not be sub-let or rented out after you buy it
  • be one that you can show you cannot afford ordinarily

In addition to mortgage repayments, you’ll have to pay equity loan fees, but not for the first 5 years. In the sixth year, you’ll be charged a fee of 1.75% of the Equity Loan’s value. The fee then increases every year, according to the Retail Prices Index plus 1%.

Fees do not count towards paying back the loan, which must be paid back within 25 years or when you sell the property. This payment will be pro-rata to the loan amount.

For example, if your home is bought for £250,000 with a 75% mortgage, a 5% deposit and a 20% Equity Loan and it then goes up in value by 30% over 10 years, you would have equity in the property of £75,000 in total. The repayment of the Equity Loan capital as and when you sell would cost you £65,000 (£50,000 initial 20% loan plus 20% of the Equity created).

Contact us or book a free call or video appointment to speak to a specialist Help to Buy mortgage adviser.

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