The Current Scheme
The Help to Buy Equity Loan Scheme was introduced in 2013 to help first time buyers and existing home-owners who wanted to purchase a new-build home but who were struggling to save for a deposit.
Applications for the current scheme ended on 15th December 2020. The current scheme will run until 31 March 2021, when it will be replaced by a new Help to Buy Equity Loan Scheme until 2023 when the scheme will come to an end. The new scheme will only be available to first time buyers.
Under the current scheme the Government will lend applicants between 15% and 40% of the value of the property (the amount depends upon where you live) You only need to put down a 5% deposit and you fund the remainder of the purchase price by a mortgage. Your builder must be registered with the scheme. The Government loan is interest only and must be repaid over 25 years but for the first 5 years there is no interest. After 5 years you are charged interest on the loan, starting at 1.75% and increasing each year by the Retail Price Index plus 1%.
Why is the Scheme Changing?
The original scheme has been criticised for artificially inflating house process, being unequal in distribution and causing problems for some early users of the scheme who have now started to repay their loans. The new scheme has been designed to resolve these issues and is now restricted to First Time Buyers and new build properties only..
Due to delays caused to construction by Covid-19, the building deadline for the current scheme has been pushed back so the new home must now be completed by 28th February 2021 to comply with requirements under the current scheme. Due to the pandemic the Government is also offering some flexibility with completion date requirements and therefore for those applicants who had reserved their properties by 30th June 2020, an extension of the time to complete their purchases can be made until 31 May 2021.
What is the new version of the Help to Buy: Equity Loan Scheme?
First time buyers will be able to borrow up to 20% (40% in London) of the cost of a new home from the Government. Applicants will need to raise a 5% minimum deposit and fund the remaining cost from a Help to Buy Mortgage. The loan is interest only so when you make repayments you are not reducing the amount of the loan. You do not pay interest for the first 5 years, after which interest is payable at 1.75% for the first year and will rise annually each April by the Consumer Prices Index plus 2%. The Borrower will also need to pay a monthly £1 management fee for the term of the loan.
To qualify for the scheme the homebuilder must be registered with the scheme and the cost of the new home is now capped depending upon where you live:
- North East £186,100
- North West £224,000
- Yorkshire & The Humber £228,100
- East Midlands £261,900
- West Midlands £255,600
- East of England £407,400
- London £600,000
- South East £437,600
- South West £349,000
In order to be eligible for the new Help to Buy Equity Loan Scheme you will need:
- To be a first time buyer
- Anyone you are buying the property with must not currently own, nor previously have owned another property or land. As of 2021 the scheme will only be available for first time buyers.
- A deposit of at least 5% of the value of the property
- To be able to afford to pay the reservation fee for your property and all of your moving costs including Stamp Duty, Mortgage Fees and Repayments, and Legal fees
How do I apply?
- Find a Home and make an application
You can search for Help to Buy Homes on-line or via a House Builder. House Builders who have registered under the scheme will display the Help to Buy Scheme logo.
Once you have chosen a home, you will need to formally reserve the home with the developer by paying the reservation fee and completing the necessary paperwork. The reservation deposit is deducted from the amount to be paid on completion.
At this point you will also need to instruct a solicitor to act on your behalf and provide their details to the Help to Buy agent on their application form. You can find the equity loan application form on the Help to Buy agents portal and submit the application online.
- Obtain Authority to Proceed
The Help to Buy Agent will check that you are eligible under the scheme and can afford to proceed with your purchase. If your application is successful you will then receive the “authority to proceed”.
What happens next?
- Exchange of Contracts
Your conveyancing solicitor will carry out a detailed investigation of the legal documents, and if necessary, raise further enquiries. They will also obtain searches to provide information relevant to the property you are purchasing and review the terms of your mortgage offer and equity loan agreement. When the solicitor’s investigations are complete and they have all of the information they consider necessary, they will report to you. A date will then be agreed to “exchange contracts”. This is the point where you will pay your deposit and become legally bound to purchase your new home by an agreed date. (Completion date).
When purchasing a New Build property it can be common for completion to be ‘on notice’ as opposed to stating a specific completion date. This means that once the property is ready, the Developer’s solicitor will provide your solicitor the ‘notice’, and completion must then take place within particular time frame, usually within 14 days of the notice being served (but this can vary!).
On completion day your mortgage lender will release the funds to your solicitor so that they can complete your purchase. The Government will also provide the Property Developer (seller) with the equity loan funds and finally you will become the legal owner of your new home!