there is still time to benefit from equity loan

If you are looking to buy a a home and you are a first time buyer – I might have some good news for you. You still have so time left in order to apply for an equity loan help to buy scheme.

The scheme makes buying a first home a lot more affordable to start with. There are however few things you have to keep in mind to benefit from this.

Below I will share what this scheme is exactly, what criteria is there to be eligible for it as well as few other relevant points to keep in mind.

Big thing to keep in mind here – the time is running out to apply for this. I will cover this below. You have to make your move now in order to secure a benefit for yourself.

what is equity loan

This scheme is one of governments help to buy schemes. This is in place to help people get on the property ladder sooner rather than later.

Equity loan allows people to borrow money from government at 0% interest for the first 5 years. This is an incredible benefit to be looked over.

If you consider the interest rates that people are being charged currently – this deal can’t be missed if you fit the criteria in the next paragraph.

One other thing to keep in mind with equity loan is – you can borrow between 5% and 20% of the property value. For London this value goes up to 40%. So this won’t cover the whole value of the property.

The rest of the money will have to come from a different source.

While you can’t get a value of the whole property covered by interest free loan – that can still be a significant benefit in terms of interest you won’t have to pay over the first 5 years.

eligibility criteria

There are some boxes you have to tick in order to be considered for the Help to Buy scheme.

Firstly, you have to be a first time buyer. What this means – you have never previously owned a property in the UK or abroad.

Secondly, you have to get a repayment mortgage for at least 25% of the value of the property. The rest can be covered by a deposit or if you have other ways of securing the money.

Next, the property you are looking to buy is a new-build. You will be the first owner of this property. On top of that, the home builder has to be registered with Help to Buy scheme.

Also, there is a limit to how much the property can cost. This will depend on the region you are looking to purchase in. The summary of this can be found on the image below.

So as an example, if you are buying in London – the property can cost up to £600,000 and you can borrow up to £240,000 interest free.

time isn’t on your side

This is the point that won’t be so great if the above made you excited about looking into equity loan Help to Buy. The time is currently playing against you.

There are 2 points in time that will be extremely important for you to hit if you want to benefit from Equity Loan scheme. Firstly, you have to make an offer and it has to be accepted by 31st of October.

On top of the above – you would need to complete the purchase by the 31st of March 2023.

The 31st of October is the date you should really focus on in case you want to benefit from this Help to Buy scheme. This is critical to hit in order to benefit from Equity Loan.

how to pay back equity loan

You can actually decide the way you want to pay back the equity loan as long as it fits the below rules.

One, you can only pay back in amounts no less than 10% of the value of the property. The value that will be used is not the price you purchased it for. The value will be the actual market value of the property.

An example of this, you bought a £300,000 house and borrowed 20% (£60,000). After 5 years you decided to pay back 10%. The value of your house went up to £320,000. This would mean – the 10% you will pay back will cost you £32,000. 

If in further 5 years the house costs £350,000 and you want to repay the remaining 10% – this will cost you £35,000. So in total, you would pay back £67,000 in the example above.

While you would have to over pay £7,000 – keep in mind, the property went up in price by £50,000. You would still make a nice profit.

fees to consider when buying a property

As with buying any property, there are fees to consider. These – you will have to be able to afford before applying to the scheme. You won’t be checked for having the money but you will be expected to cover these out of your pocket.

The fees to consider will be mortgage related, legal fees, potential property valuation fees, etc. I have written an article on this topic with some examples of what you can expect to pay. As a first time buyer, you will also benefit from Stamp Duty discount. You can learn more about it here.

The total costs I would estimate anywhere north of £3,000 as a guide.

summary

Equity Loan Help to Buy is a great scheme to consider if you are looking to buy your first home. There a lot of benefits you can get with the scheme especially as the interest rates on the market are starting to go through the roof.

One potential issue here to consider – timings aren’t in your favour if you haven’t started looking into properties yet. With new-build homes however the process can be really quick and smooth. The key is to find a property that you like.

If you want more information on the scheme please use one of the following links – North, South (excl. London) and Midlands & London.