The existing Help to Buy equity loan scheme is coming to an end, but a new one is replacing it. Find out how it can help you get on the property ladder…
Getting a foot on the property ladder is no mean feat these days – but for would-be first-time buyers who are struggling to save up enough for a deposit, there is a light at the end of the tunnel. The Help to Buy scheme has given fledgling property owners a leg-up with ISAs to boost savings, equity loans to provide a deposit and shared ownership schemes. Now, however, the equity loan scheme is coming to an end on 31 March 2021 and is being replaced by the Help to Buy: Equity Loan Scheme, (2021 – 2023).
The new scheme at a glance
- You can apply from 16 December 2020
- Applies to new-build homes only
- Eligible first-time buyers can borrow up to 20 per cent (40 per cent in London) of the purchase price
- How much you can spend on your home depends on where you live (see below)
- If you are buying as a couple, both applicants must be first-time buyers (never owned a property anywhere in the world).
Eligible purchase prices
The purchase price of your new home must be at or below the following figures, depending on where you live:
|Region||Price cap for Help to Buy
homes April 2021 to March 2023
|Yorkshire and The Humber||£228,100|
|East of England||£407,400|
How it works
The new buyers will need to arrange a repayment mortgage of at least 25% of the purchase price of their new home and will be required to pay a minimum of five per cent deposit when contracts are exchanged. However, they won’t pay interest on the equity loan which should help to make the monthly mortgage costs more affordable.
This scheme gives new home buyers a breathing space of five years before interest is payable on the equity loan. Interest fees start at 1.75% and rise each year in April by the Consumer Prices Index (CPI) plus 2%. In addition, a monthly management fee of £1 is payable for the life of the equity loan.
How will I pay back the loan?
The loan must be paid off when you sell the property, pay off the repayment mortgage, or if the loan term comes to an end. However, you can pay the loan off at any time before then – you might choose to pay more into the loan when you get a pay rise, or if you inherit a lump sum, for instance.
What if I am buying under the old scheme?
Some allowances have been made because of Covid delays, but in general your housebuilder must have the homes ready to move into by the end of February 2021.
You can still apply for the old scheme if your property will be completed by 28 February 2021 and you can complete your purchase by 31 March 2021.
What if I reserved a house in summer 2020?
Allowances are being made for builders who have experienced severe delays due to Covid.
- If you reserved a property by 30 June 2020, but it is not yet ready, your builder must have it ready by 30 April 2021 and you must be able to complete the purchase by the end of May.
- If you reserved a home from July 1 2020 onwards, your builder must have it ready by 28 February and you must complete purchase by the end of March 2021 to be eligible for the old scheme.
Note that if you cannot complete the purchase within the allotted time, you will have to make a new loan application under the new scheme – you will not simply be able to swap across to the new scheme.
Visit the gov.uk website for the full detail.
If you would like to discuss the Help to Buy scheme, mortgages or any other financial matters, we will be happy to help. Please contact us without obligation.
Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across England and Wales. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email email@example.com.