The Government has created a scheme to assist people to buy their own home with a deposit as little as 5%. This is called the Help to Buy Equity Loan scheme. Help to Buy Equity Loans are available to first time buyers and homeowners looking to move. The Government will lend you an equity loan up to 40 per cent of the property value in London (outside London 20%), which can be repaid at any time during the loan term or on the sale of your home. You’ll need to secure the remaining borrowing from a bank or building society in the form of a mortgage, which your Bennison Brown adviser can arrange for you.
The Help to Buy equity loan is interest free for the first five years, after which you will be charged a rate of 1.75%. This rate steadily increases year on year in line with any rise in the Retail Price Index plus 1%. These repayments will be on top of your mortgage repayments. There is a range of competitive mortgage rates available, which will help your budget.
How do I qualify for a Help to Buy Mortgage?
To qualify, the home you are looking to purchase must be a new build, your only home (not a second home or a property you plan to rent out) and must not cost more than £600,000.
We will work with you to assess your finances and get a mortgage decision in principle to give you an idea of the size of mortgage you would qualify for - so that when you visit house builders, you will know how much you can afford to pay for a property. Mortgages are subject to the scheme rules and the lender normally checks the criteria. Help from your Bennison Brown mortgage adviser is invaluable to help you prepare for a successful mortgage offer.
How does a Help to Buy Equity Loan scheme work?
In the above example if you were purchasing a home valued at £400,000 in London and had a deposit of £20,000 (5%) The government would advance £160,000 (40%) as a Help to Buy Equity Loan and we would help you arrange a mortgage of £220,000 with a lender.
If the home in the example above sold for £420,000, you'd get £252,000 (60%, from your mortgage and the cash deposit) and you'd pay back £168,000 on the loan (40%). You'd need to pay off your mortgage with your share of the money. Effectively the government get 40% of the £20,000 gain in addition to the original amount you borrowed.