The reality of becoming a homeowner for the first time can feel out of reach for some.
Saving for a deposit can be a real struggle for several would-be first-time buyers. That, and the fact the higher loan-to-value mortgage schemes have declined since the start of the COVID-19 pandemic.
However, the UK government has initiated a number of schemes to help make homeownership a reality including its latest version of the Help To Buy: Equity Loan scheme.
What is the Help To Buy: Equity Loan scheme?
In a nutshell, this scheme is solely available to first-time buyers in England on the purchase of new-build properties. Buyers receive an ‘equity loan’ from the government to put toward the purchase of the new build.
Buyers can borrow a minimum of 5% and up to a maximum of 20% (40% in London) of the full purchase price of a new-build home.
Finally, properties must be purchased from housebuilders registered for Help to Buy: Equity Loan.
Regional price caps
The amount you can spend on the home depends on where in England you buy it. Please see the below table to understand the regional price caps.
The maximum price for a home – April 2021 to March 2023
|Region||Maximum property price|
|Yorkshire and the Humber||£228,100|
|East of England||£407,400|
The maximum property price is the full purchase price. You cannot change or negotiate this maximum. Your home builder will be able to confirm if the home you want to buy is within the price range.
How is the loan repaid?
When considering if the government’s equity loan scheme is right for you or not, you should make yourself aware of what the cost implications are in the long run.
For the first five 5 years:
• the equity loan is interest-free
• you pay a £1 monthly management fee by Direct Debit
From year 6:
• pay the £1 monthly management fee
• pay a monthly interest fee of 1.75% of the equity loan
• the interest rate 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
The repayment model is clear from the offset and at the point you take out your equity loan, you agree to repay it in full, plus interest and management fees.
You must repay your equity loan in full:
• at the end of the equity loan term
• when you pay off your repayment mortgage
• when you sell your home
• if you do not follow the terms set out in the equity loan contract and Help to Buy ask you to repay the loan in full
The total amount you pay back is worked out as a percentage of the market value at the time you choose to repay not what it was when you originally took out the loan.
Therefore, if the market value of your home rises, so does the amount you owe on your equity loan. However, if the value of your home falls, the amount you owe on your equity loan falls too.
For further information about the scheme, see here.
What other schemes are available?
If you’re looking for similar schemes to get onto the property ladder there are a couple of alternatives that may also be worth considering.
95% mortgage guarantee scheme
The 95% mortgage guarantee scheme is the latest offering by the UK government. It was announced as part of the Chancellor’s Spring Statement in March 2021, after most lenders withdrew their 95% LTV mortgage products at the beginning of the COVID-19 pandemic.
This scheme, which is available to all buyers (not just first-time buyers), can be used against the purchase of new-build homes as well as re-sale properties up to the value of £600,000. Meaning there’s no regional price cap – a clear differentiator to the Help To Buy: Equity Loan scheme.
Under the terms of this scheme, which runs until the end of 2022, the government guarantees the first 15% of the mortgage, so the lender is covered for this portion of the loan. What it means in practice for borrowers is that those with a 5% or 10% deposit will be able to choose from a wider range of home loans.
Through the government’s Shared Ownership scheme, buyers buy a share of a property through a housing association. You only need to save for the deposit and get a mortgage for the share of the property they’re looking to purchase. This can be a lot lower than if you were to buy a property outright. The remaining share of the home you pay rent on.
According to the gov.uk website you can buy a home through shared ownership if your household earns £80,000 a year or less (or £90,000 a year or less in London) and any of the following apply:
• you’re a first-time buyer
• you used to own a home, but cannot afford to buy one now
• you’re an existing shared owner
For all the latest affordable homeownership schemes offered by the government take a look here.