Help to Buy, somewhat unsurprisingly, really provides you with the Help you need to Buy a new home! But for what and for who, you may ask? In its most simplistic form, Help to Buy is financial initiative from the government to enable people to buy a home.
An introduction to Help to Buy Equity Loan
While there are different ways that the governments’ Help to Buy scheme helps people to get on or climb the property ladder, for the purposes of this article, we are going to focus on the Help to Buy Equity Loan. All of our current developments offer the Help to Buy Equity Loan. This provides you with a significant loan from the government to reduce the deposit needed to buy a home and to make your mortgage repayments more affordable.
When you take a Help to Buy Equity Loan, the government ‘lends’ you up to 40% of the purchase price of your new home in London. This means that you only need to find a 5% deposit and can then take a 55% mortgage for the remaining value. There is no interest charged on the 40% during the first five years of owning your home. Outside of London, the government provides as an equity loan of 20% of the purchase price with a minimum deposit of 5% of the purchase price.
At the moment, the Help to Buy initiative is only available until March 2021 and March 2023 for First Time Buyers. This means that there is a limited window of opportunity for people to benefit from this incredible Government initiative and get onto or move up the Property ladder.
How can I buy with Life Less Ordinary using Help to Buy
All Life Less Ordinary properties qualify for the Help to Buy Equity Loan scheme. Our dedicated customer care representative and sales agents will carefully take you through the process of applying for a Help to Buy equity loan scheme.
Life Less Ordinary will help you through the processes to apply for the Equity Loan scheme. The first step is the application, where we will assist you in preparing the Property Information Form and will provide a reservation form for your completion. Our team will send the signed copies of these documents to the local Help to Buy agent for processing. The Help to Buy agent will then review your application and if they believe that you can afford your mortgage and if you have signed and fully completed the Property Information Form, you should receive an “Authority to Proceed”. You can then instruct your Solicitor and apply for your mortgage (normally done via a Mortgage Broker).
Once your mortgage is in place, you then exchange contracts and will pay the 5% deposit. At this point, you are legally obligated to complete the purchase of the property. Upon completion, your Solicitor will contact Homes England and facilitate the release of the Equity Loan to the developer and, just like that, you will own a brand new home.
Frequently Asked Questions
What Criteria Must my Property Meet to Qualify for Help to Buy Equity Loan?
- Newly built home (with registered developer)
- Property value of up to £600,000
Who Qualifies for a Help to Buy Equity Loan?
- First Time Buyers
- Homeowners (who will only own one property at a time)
Who Does not Qualify for a Help to Buy Equity Loan?
- Those buying a second home
- Buy to Let landlords
I have more than a 5% deposit. Can I still benefit from a Help to Buy Equity Loan?
Yes. The scheme simply requires that you can fund between invested equity and a mortgage 60% of the property value (80% outside London) The minimum mortgage amount is 25% of the property value.
What is the interest on the Equity Loan?
For the first five years there is no interest on the Equity Loan. After 5 years, you will pay 1.75% plus any increase in the Retail Price Index + 1%. There is also a monthly fee of £1 payable from when you receive the loan until it is repaid.
When do I have to repay the Equity Loan?
The loan has to be repaid after 25 years or when you sell the property, whichever is the sooner. Homes England, who administer the scheme, will have a second charge on the property until such time as the loan is repaid.
How much do I have to repay?
The Loan is assessed as a percentage value of the property at the point at which you buy it. This means that when you sell the property (or at the end of the 25-year loan), you have to pay the same percentage value based on the market value or sale price of the property plus any interest and fees accrued. This means that if the value of the property increases then Homes England will be entitled to the increased value. However, if the value of the property does not increase for any reason, then Homes England would share in the loss.
What if I want to repay the Equity Loan early?
You can choose to make payments early to pay of the capital value of the loan. This is assessed in percentage terms when you want to make a payment and 10% of the assessed property value is the minimum payment. This is called ‘staircasing’. Alternatively, you can pay the full balance at any time. Many people elect to repay at the end of the five-year interest free period.
Can I Use the Help to Buy Equity Loan to pay stamp duty, legal fees and other purchase costs?
No. Like a mortgage, the Help to Buy Equity Loan is only applicable to the value of the property. Buyers must make sure that they have sufficient funds to pay all of their incidental purchase costs.
What other costs may I have to bear as a result of the Help to Buy Equity Loan?
There are various administration fees applicable, including fees when you re-mortgage, make a staircase payment, change names or fail to make payments resulting in the need for debt recovery. These costs are one off and except debt recovery are all under £200 a time.
Book an appointment with our team to find out more about our developments that you can purchase with the benefit of Help to Buy. Nothing on this site constitutes legal or financial advice or gives rise to a contractual obligation. Specialist legal and financial advice should be taken in relation to specific circumstances.