The government has announced that the new Help to Buy Equity Loan scheme in England will be open to new applications from 16th December, rather than April 2021.
The scheme will replace the current one and run to March 2023.
Let’s have a quick look at who the scheme is for and how it works.
Who is the Help to Buy scheme for?
The scheme is for…
…First-time buyers in England. So a buyer is not eligible if they or their partner (married or civil partnership) already own or have previously owned a property or residential land – in the UK or elsewhere.
…Those buying a newly built home. The property developer must be approved, and registered with the scheme. Most well-known developers are taking part in the scheme.
…Those buying one property that will be their permanent residence.
…Those who can demonstrate they have a minimum deposit of 5% of the property’s purchase price. They must also show they can keep up with monthly mortgage and equity loan repayments.
There is a price cap for each region in England. So for those buying in London, the scheme can be used for a property up to the price of £600,000. Comparatively, the scheme can be used in the North East for properties up to the price of £186,100. This reflects average asking prices.
What help can eligible buyers receive?
If the buyer meets all of the above criteria, the government will provide a low-interest loan of 20% of the house price (or up to 40% if the property is in London). The mortgage provider will then lend the remaining balance.
The government loan is interest-free for the first five years. After that, a monthly interest fee of 1.75% will apply. Increases will take place each year in April.
What happens when the buyer sells in the future?
The buyer, when selling, will need to repay a share of any capital appreciation that has occurred.
In other words, according to Rightmove, “If you buy a property for £200,000 and take the equity loan for 20% of the value, i.e £40,000, when you sell the property say for £225,000 you will need to repay 20% of the selling price back to the government in repayment of the loan. In this example, you would need to pay £45,000. If however property prices have fallen and the market value of the property is now £175,000, then you would still pay the 20% back but this would have fallen to £35,000.”