Help to buy equity loans (new Homes)

The British Government’s help to buy equity loan scheme for new properties is proving to be a major winner. 

Since it was launched, the mortgage guarantee from the scheme has helped 7313 people in the first 6 months; however, this is nothing compared to the help to buy equity loan on offer. An amazing 22,831 people have been able to buy new properties through this scheme in just 14 months. This has served to help stimulate the economy, as well as help new home buyers. Below we provide specific details on what the help to buy equity loan scheme is and how you can benefit from it.

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What is a help to buy equity loan?

It’s a Government-backed interest free equity loan that enables new home buyers to contribute only 5 percent of the property price as a deposit – rather than the normal 25 percent. The equity loan funds the remaining 20 percent deposit, with the home buyer covering the remaining 75% of the property through a traditional mortgage.

How does this work in practice?

Using a 400,000 pound property as an example, the breakdown for a help to buy equity loan is as follows:

  • 5 percent cash deposit:  This is put in by the home buyer and in this case is 20,000 pounds.
  • Equity loan of 20 percent:  This is put in by the Government and in this case is 80,000 pounds.
  • Mortgage of 75 percent:  In this case 300,000 pounds and source through a traditional lender.

In this scenario you can purchase a 400,000 pound property for only 20,000 pounds down. Much more realistic than the traditional 100,000 pound deposit.

How can I apply for a help to buy equity loan?

The process is quite easy. There are help to buy agents all over England, simply click on this link to find one near you. Contact them and they will provide the specific details.

To qualify you need to meet the following criteria:

  • You must be purchasing a new property (but you can be a first home buyer or a home mover)
  • The property must be valued at less than 600,000 pounds
  • You must have a minimum deposit of 5 percent
  • You must be approved for a 75% mortgage on the full price of the property
  • You must live in England (although there is a Scottish equivalent as well).

How is the equity loan paid back?

The key benefit of the help to buy equity loan, is that you don’t pay interest for the first five years. In this sixth year you pay a fee of 1.75% of the total amount owed. This increases every year until the loan is paid off. You can pay by installments or in one lump sum payment. The equity loan can also be paid back when the home is sold. In this instance, the Government will take 20 percent of the sold price – even if there is an increase in value.

What are the risks with help to buy equity loans?

While it is a great scheme to fast track home ownership, it is not without its risks. People using the scheme need to be careful that they don’t over commit themselves. The three key risks to keep in mind include:

  • Paying two loans:  Effectively, you are paying for a mortgage as well as an equity loan. You need to be sure that you can afford both payments (it makes sense to pay off in five years so you don’t pay interest)
  • You only own 80 percent of the property:  The Government owns the other 20 percent of the property until the equity loan is paid off
  • The loan is 20 percent of the value of the property:  If you sell the property in four years and it has increased by 10 percent, the amount you pay back is 20 percent of the new increased price.

In summary, if you are looking to purchase a newly built home, then you should consider a help to buy equity loan. As it is becoming increasingly difficult to save 20 to 25 percent deposit for a property, these loans are a very valuable tool. Just make sure that you don’t over commit and that you can actually afford to buy the property. 

Do you have questions about equity loans? Come meet with us here at Greens Lettings in South East London SE18. To schedule an appointment, contact us by clicking here.

Wishing you success in the property market.


Greens Lettings | Letting Agent SE18 Property Management | Landlords  | HMO Experts and Specialists 

Greens Lettings is a property management company based in Shooters Hill, London. As your HMO expert in SE18, we continue to serve places in South East London such as SE2 (Abbey Wood), SE3 (Blackheath), SE7 (Charlton), SE9 (Eltham), SE10 (Greenwich South St), SE18 (Woolwich), SE23 (Lewisham) and SE28 (Thamesmead) — just to name a few. We are your local online letting agent specialising in HMO tenant find and full management. We offer free consultation and free property valuation. Contact Greens Lettings here.

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