Why first-time buyers should consider using a Help to Buy equity loan

If you are a first-time buyer, you will likely have heard about the Help to Buy scheme, which is a government-backed scheme aimed at making it easier to take your first steps onto the property ladder.

In the 12 months before March 2021, over 55,000 home purchases were completed using the help to buy equity scheme, an increase of 8% from the year before. The scheme’s popularity, which was launched in 2013, has proven to be an effective tool in helping people buy their first home. But what exactly is it? Who is it for, and what do you need to qualify for help under the scheme?

At Mortgagemove, we know that mortgages can be complicated for first-time buyers. After all, there’s so much jargon involved, many of which you’ll have likely had never come across before. That’s why we are taking a conscious approach to explaining the intricacies of mortgages. We want you to know what to expect and understand how we can find you the right mortgage deal.

Our latest article explains the help to buy equity loans and why first-time buyers should consider taking advantage of this scheme.

What is the help to buy scheme?

Help to buy is an equity loan scheme designed to help people take their first steps onto the property ladder. It is aimed at those who may not access a standard residential mortgage because they do not have a big enough deposit.

Thanks to help to buy, potential homeowners can borrow up to 20% of the value of a new-build home. This loan is interest-free for the first five years. It means that homeowners (typically first-time buyers) can buy a new home with just a 5% deposit.

By combining the help to buy equity loans with their own savings, the potential homeowner will access 25% of the property value. This means that they will only need a mortgage for the remaining 75%.

For the first five years, your help to buy equity loan will be interest-free. After this, you will be charged 1.75% interest. This interest rate may fluctuate annually, depending upon RPI.

It’s important to realise that because you are borrowing a percentage of your property’s value (which may differ, depending on what area of your country you are living in), you are not borrowing a fixed amount. So, if the value of your home rises, so will the amount of money you will need to repay (and vice versa).

Because help to buy equity loans are in addition to your mortgage payments, you will only be asked to repay the interest portion of the loan. Therefore, you do not need to repay the equity until you decide to sell your home or come to the end of your mortgage term. However, you can choose to reduce the equity owed by making “staircasing repayments.” You can make these repayments at any time, but each repayment must be at least 10% of the current market value of your property.

You may find that some mortgage lenders may have restrictions about these “staircasing repayments.” However, if you are speaking to one of Mortgagemove’s expert mortgage advisers, we will explain all of the valid options and help you find the right mortgage deal for you.

Who can benefit from the help to buy scheme?

Help to buy is aimed at helping first-time buyers over the age of 18 living in England.

The equity scheme is in conjunction with many property developers. It is only available for those wishing to buy a new-build home.

Similar schemes are available for those living in Scotland and Wales.

How can you qualify for the help to buy scheme?

To be eligible for the scheme, you must be over 18 and living in England.

Help to buy is only available on new-build properties that have never been lived in before. In addition, the property must be sold by a Help to Buy registered homebuilder.

You must be able to prove that you can afford the interest payments and any fees.

If you have previously owned a property (including a holiday let, inherited a home, or shared property with another person), you will not be eligible for the scheme. It is also not open to anyone who has previously benefited from sharia mortgage financing.

If you are buying a home with a partner, that person must not have previously owned property of their own. If they have, you will be deemed ineligible. Similarly, your application must be in joint names if you are married or in a civil partnership. You may need to sign a legal affirmation that you are a first-time buyer.

If you are a first-time buyer and you want to find out more about the help to buy equity scheme, our Mortgagemove advisers will be able to confirm if you are eligible for the scheme.

What are the benefits of the help to buy equity scheme?

As of March 2021, over 328,500 completions have taken place using the help to buy equity scheme. With so many first-time buyers benefiting from the loan, there must be many benefits to the initiative.

Firstly, it can help you to get onto the property ladder sooner than you may have anticipated. As you only need a 5% deposit, it can be much easier for people to have enough funds to secure a mortgage. For those working in low-paid jobs or living in expensive areas, this can be a lifeline.

Because help to buy offers an equity loan in addition to your deposit, your mortgage loan to value will be much lower than if you only had a 5% deposit. This means that many mortgage lenders may offer preferable interest rates and lower monthly repayments.

For the first five years, your help to buy equity loan is interest-free. This means that you can benefit from some initial savings. Many help-to-buy homeowners choose to use the first five years to make “staircasing repayments” in a bid to increase their own equity and reduce the repayment amount later on. When interest rates do kick in, homeowners can benefit from a competitive 1.75% interest rate. If you manage to repay the loan within the first five years, you won’t have to pay any interest at all!

We work closely with first-time buyers to help you buy your dream home

Our team of expert mortgage advisers is uniquely placed to help first-time buyers understand how they can own their own homes. As well as identifying suitable mortgage options from a range of lenders, we can explain how you can benefit from initiatives such as the help to buy equity loans.

To find out more about how we can help you find the right mortgage deal, please call our freephone mortgage advice line on 0333 005 0333. Alternatively, please text ADVICE to 82228.

Your home may be repossessed if you do not keep up your mortgage repayments.

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