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Help to Buy Mortgages

If you were 26 years of age in 1997, half your age group could afford to buy their own home. According to the Office for National Statistics, in 2017 that age had increased by 8 years to 34 years.[1] The decline of home ownership among young adults has led some to say the ‘age of home ownership’ is nearly over, if it is not already.

Despite this, there are notable government-backed schemes available to help would-be home buyers get onto the property ladder faster. Example schemes include the Help to Buy ISA, first-time buyer stamp duty land tax (SDLT) relief and the Help to Buy Equity Loan. In this blog, we take a closer look at the Help to Buy Equity Loan.

Are you eligible?

The government’s Help to Buy Equity Loan is available to existing homeowners who are looking to move as well as first-time buyers. The Help to Buy Equity Loan is available to those:

  • Purchasing a new build property
  • Who have a minimum 5% cash deposit (5% of the full purchase price)
  • Who will be using the property as their only residence
  • Who agree not to rent out the property and use it as their main residence

If you live outside of London, you must be able to obtain an up to 80% of the purchase price from a qualified mortgage lender, such as a bank or building society. If you live in London, this threshold is set at up to 60% of the full purchase price.

The best person to speak to about being able to use a Help to Buy Equity Loan is the sales office of your new build property. Alternatively, further information is available on the Help to Buy website.

Young couple hug in new home with moving boxes behind them

How it works

If you’re eligible, the government will loan you up to 20% of the purchase price of your new home; you will not be charged any loan fees on this 20% for the first five years of owning your home. This means that, after you’ve also paid your 5% cash deposit, you only need to take out a mortgage for 75% of the purchase price, which can save you a lot in fees and mortgage lenders insurance.

What to look out for

1. Charges and interest

You can repay the value at any time during the course of the Help to Buy Equity Loan, but the repayment process does require a solicitor and a Royal Institute of Chartered Surveyors (RICS) valuation. QualitySolicitors Lockings are able to act for homeowners seeking to repay their Help to Buy Equity Loan.

It is important to note that the equity loan is based on the value of the property. So if the value of the property increases, so does the repayment figure of the loan.

Also be mindful that interest on the government’s 20% loan will be charged from the sixth year of ownership.

2. Renting

The property you are purchasing must be your only residence.

Subletting may be considered only in exceptional circumstances (e.g. a serving member of the Armed Forces who must serve away for a period of time), however you must seek prior approval from the Help to Buy agency and your main lender before doing so.

3. Second homes

You cannot rent out your existing home and buy a second home through a Help to Buy scheme.

4. You can’t sell without repaying the loan

The Help to Buy Equity Loan will be secured through a second charge registered on your property title at the Land Registry. This means that your property cannot be sold in the future unless the equity loan is repaid.

5. Early repayment

The Help to Buy scheme allows you to repay all or part of your equity loan.

An independent valuer will usually be required to provide a valuation of your property and you will also be responsible for the associated administration costs. A solicitor will also be required for the repayment process, which our property solicitors can help you with.

6. Alterations or extensions

You are not permitted to extend or alter the property without the consent of the Help to Buy Agency. If consent is granted for the improvements in writing, the improvements will be ignored when your property is valued in the future to work out how much should be repaid.

 

We can act for you and your mortgage lender when you are buying your home with a Help to Buy Equity Loan. If you’re buying a home in England or Wales under a Help to Buy scheme, call QualitySolicitors Lockings to Make a Free Enquiry on 01482 977 925.

 

[1] Office for National Statistics, ‘Milestones: journeying into adulthood’ (18 February 2019) https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/articles/milestonesjourneyingintoadulthood/2019-02-18#ownhome

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