Changes to Help to Buy equity loan scheme
If you are a first-time buyer in England, you can now apply for the UK Government’s Help to Buy scheme.
The current Help to Buy scheme was first launched in 2013. The scheme allows first-time buyers and homeowners the opportunity to buy a newly built property worth up to £600,000 with only a 5% deposit.
This scheme has changed over time and has now become more restricted. Only first-time buyers can apply for the loan based on regional price caps. This means, that the area you are in will depend on how expensive your house is and whether you will qualify for the Help to Buy scheme.
The Help to Buy scheme requires that as a first-time buyer, you put down a 5% deposit on the property you wish to purchase. This means you can borrow 20% of the purchase price, or if you are living in London, you get the luxury of borrowing 40% from the government with a top-up loan. You will need to speak with a mortgage provider to cover the rest of the purchase price.
The most important part of this loan is that the amount you borrow from the government is interest-free for the first 5 years. The interest rate fee will increase to almost 2% in the sixth year. This excludes any inflation-based increase.
Paying back the equity loan
If you are a first-time buyer, be aware, that when you sell your property, you will need to pay back your Help to Buy loan in full. This can sometimes come as a shock to many first-time homeowners because of the extra costs involved when selling.
You can choose to pay off your equity loan at any time.
Repayments are based on your equity loan percentage and the market value of your home at the time you come to make the repayment.
You will need to get a market valuation report from a chartered surveyor when you make a repayment. Chartered surveyors can be found on The Royal Institution of Chartered Surveyors (RICS) website.
The smallest repayment you can make is 10% of the market value of your home.
Paying back part of your equity loan will reduce the monthly interest payments you will need to pay from the sixth year of taking out the equity loan.
If you sell your home, you will pay the equity loan percentage of the market value or the agreed sale price if it is higher.
Whilst the Help to Buy scheme has been a huge help for first-time buyers to get onto the property ladder, eager buyers need to be aware of the extra costs when it comes to selling the property before the loan is paid off.
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This blog intends to provide information of general interest about current legal issues and does not constitute legal advice.