With ‘Help to Buy’, the Government lends you up to 20% of the cost of your newly built home, so you may only need a 5% cash deposit and a 75% mortgage to make up the rest. To reflect the current property prices in London, from February 2016 the Government is increasing the upper limit for the equity loan it gives new home-buyers within Greater London from 20% to 40%.
The scheme is open to first time buyers and current home owners buying a new home. With a maximum ‘Help to Buy Loan’ of £120,000 outside London and £240,000 inside London, this is, on the face of it, great news for buyers with limited capital looking to buy a newly built home. Of course, it could also be argued that such a subsidy is simply driving house prices even higher as a result.
Outside London, using the Government’s own example;
If a home sold for £210,000, you’d get £168,000 (80%, from your mortgage and the cash deposit) and you’d pay back the £42,000 Help to Buy Loan (20%). You’d need to pay off your mortgage with your share of the money.
You won’t be charged loan fees on the 20% loan for the first five years of owning your home. After five years you will be required to pay an interest fee of 1.75% of the amount of your Help to Buy shared equity loan at the time you purchased your property, rising each year after that by the increase (if any) in the Retail Prices Index (RPI) plus 1%.
The total amount repayable by you will be the proportion of the market value of your home that was funded by this loan, plus interest and charges. The amount you will have to repay under the loan agreement will depend on the market value of your home when you repay the Help to Buy equity loan and the rate of inflation in the meantime. An example is shown on page 21 including the equivalent APR.
The loan itself is repayable after 25 years or on the sale of the property if earlier. Contact us to find out if this scheme might be available to you.
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