How does it work?

Some homebuyers will have more time to buy their home if they reserved it by 30 June 2020. They must have experienced severe delays with their purchase due to COVID-19. To find out more go to Help to Buy: Equity Loan customers during Coronavirus (COVID-19).

A new Help to Buy: Equity Loan scheme open to first-time buyers only will be available for two-years from 1 April 2021. The Help to Buy scheme will end on 31 March 2023. Find out more at about Help to Buy scheme 2021-2023.

With a Help to Buy: Equity Loan the government lends you up to 20% (40% if you’re in London) of the cost of your newly built home.

You pay a deposit of 5% or more and arrange a mortgage of 25% or more to make up the rest.

You won’t be charged interest on the 20% loan for the first five years of owning your home.

Example: for a home with a £200,000 price tag

 

Help to Buy: Equity Loan scheme Example

 

Example: for a home in London with a £400,000 price tag

London Help to Buy: example costs

Paying back the equity loan

For the first five 5 years:

  • the equity loan is interest free
  • you pay a £1 monthly management fee by Direct Debit

 From year 6:

  • you continue to pay the £1 monthly management fee
  • you start to pay a monthly interest fee of 1.75% of the equity loan
  • your interest fee will rise each year in April by the Retail Price Index (RPI) plus 1% until you repay your loan

You only need to repay the equity loan in full when you:

  • pay off your mortgage
  • sell your home
  • come to the end of your equity loan term.

But you can choose to pay off your equity loan any time, in full or in 10% chunks before the end of the loan period.

The amount you borrow is a percentage of the value of your new home. And the amount you pay back is the same percentage of the value of your home.

This means, if the value of your home rises, so does the amount you owe on your equity loan. It works both ways, so if the value of your home falls, the amount you owe on your loan falls too.

Example: Repaying a 20% equity loan where the home has increased in value.

  • buy your home for £200,000
  • sell your home for £210,000
  • Repay your 20% equity loan, £42,000
  • Pay off your 75% mortgage, £150,000

Example: Repaying a 40% equity loan where the home has increased in value you:

  • buy your home for £400,000
  • sell your home for £420,000
  • Repay your 40% equity loan, £168,000
  • pay off your 55% mortgage, £220,000

For more information, including advice on fees and paying back your loan, please download our Help to Buy buyers’ guide.