Help to Buy equity loan: what you need to know

Becky Daniels
November 2022
Over the last decade, the Help to Buy equity loan helped over 350,000 people get the keys to their first home. Here's everything you need to know about it.

Help to Buy has been with us for longer than Peaky Blinders, and just like the legendary drama, there won’t be another series. As it stands, Help to Buy is due to end in March 2023, with no sign of an extension or replacement.

However, Help to Buy has had more comebacks than Richard Bacon, so you can never rule anything out. Whatever the future holds, consider this blog the ‘emergency break glass’ if you ever need to scramble together a Help to Buy equity loan.

What is the Help to Buy scheme?

The Help to Buy scheme is a UK government-backed equity loan that gives first time buyers the chance to get on the housing ladder with a deposit of just 5%. It was launched in 2013 and has helped more than 361,000 first time buyers secure their first home. More than 15% of these buyers moved in the 2020-21 peak, back when Zoom and Zoopla dominated our lockdown lives.

How does Help to Buy work?

In a nutshell, here is how Help to Buy works:

  • You find a home through the scheme and put down a 5% deposit.
  • The government loans you 20% of the value of the home (essentially bumping up your deposit to 25%).
  • You take out a mortgage on the remaining 75% of the home’s value.

Is Help to Buy only for new builds?

In short – yes. Since it was launched, Help to Buy has only been available for new build homes where no one has previously lived. Specifically, the property needs to have been built by a Help to Buy registered homebuilder. So if you’re into cute cottages or thatched farmsteads, Help to Buy is not the one.

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Is Help to Buy only for first time buyers?

Indeed. Help to Buy is solely available to first time buyers, which means you won’t be able to have owned a home (or residential land) either in the UK or overseas.

Who else can apply?

Unlike tickets to a Chesney Hawkes reunion tour, they don’t just give this stuff away.

In order to be eligible for Help to Buy, you will need to prove that you can afford the mortgage and any interest. An eligibility check will be carried out, which will assess factors like your monthly income and outgoings, as well as household bills.

You’ll also need to be 18 or above, and while you can apply on your own, you’ll have to go through a joint application if you’re married, in a civil partnership or cohabiting and intend to live together.

Is Help to Buy interest free?

No, the Help to Buy equity loan is only interest-free for the first five years. In year six, interest is charged at 1.75%, and then increases each April by adding the Consumer Price Index plus 2%. The amount you pay in interest is based on the home’s value at the time (rather than the original amount you borrowed). 

According to the latest Statista data for 2020-21, the average mortgage holder spends 8.7 years in their home, and it’s 4.2 years for private renters. So unless you plan on staying put for the long-term, Help to Buyers could expect to be relatively unscathed from big interest charges (so long as you’re in a position to pay back the loan).

How to pay back Help to Buy

You can pay back your equity loan at any time – either in full or as a partial payment. Note that the smallest repayment you can make is 10% of the home’s market value. Each time you make a repayment, you’ll need to get a valuation report from a chartered surveyor in order to prove what the home is worth.

What’s the Help to Buy ISA?

The Help to Buy ISA closed to new accounts in November 2019, so don’t get too excited. It was first announced in the 2015 Budget and was designed to help first time buyers save money towards their first home. However, if you’ve already opened a Help to Buy ISA, you can continue saving into this account until November 2029, when let’s face it, we’ll all be living in 3D-printed igloos.

Is Help to Buy really ending?

As it stands, Help to Buy will finally close on March 31st 2022. If you’re looking for some extra support, you might want to look into Help to Buy alternatives like the new First Homes scheme.

While you can no longer apply for a Help to Buy equity loan, if your purchase is already underway, you have until 31st December 2022 for the property to be physically built – otherwise known as the best NYE party ever.

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