Jonathan Woodroffe

Published 7 April 2021

Changes in the Government’s Help To Buy Equity Loan Scheme

First-time buyers with small deposits will be able to take advantage of the new Help to Buy: Equity Loan scheme from April 2021.

Those buying new homes from builders registered with the scheme will be able to borrow between 5 and 20 per cent (or 40 per cent in London) of the full purchase price of their home from the government.

The scheme will run from April 2021 until March 2023 and replaces a similar scheme that expired in March 2021.

Help to Buy: Equity Loan price caps

The loans are subject to a maximum property price which varies by region, as follows:

Region Maximum property price

North East £186,100

North West £224,400

Yorkshire and 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

Taking out a government equity loan

The government loan will cover up to 20 per cent of the price, with the first time buyer putting down a deposit of at least 5 per cent. The balance can be made up with a mortgage advance. By way of example, a £200,000 home could be purchased with £10,000 from the buyer by way of a 5 per cent deposit, £40,000 from the government by way of a 20 per cent equity loan and the remaining 75 per cent, or £150,000, by way of a mortgage advance. 

No interest is payable on the government equity loan for the first five years. From the start of year six, interest is payable on the amount borrowed. The payments are on an interest-only basis, so the amount owed will not be reduced.

The equity loan can be repaid at any time. If it is only repaid in part, then the repayment must be at least 10 per cent of what the property is worth at the time the repayment is made.

In any event, the loan must be repaid at the end of the term or when the mortgage is paid off or the property sold. 

The amount to be repaid is worked out as a percentage of the market value of the property at the time of repayment. This means that if the home increases in price, the amount to be repaid will also increase.

The mortgage guarantee scheme

There is also an alternative to the Help to Buy: Equity Loan scheme in the shape of the government’s new mortgage guarantee scheme. 

The scheme is designed to increase the availability of 95 percent loan-to-value mortgages to help more people onto the property ladder without the need for large deposits.

Also launching in April 2021, the government will guarantee the portion of a loan over 80 per cent, to a maximum of 95 per cent. This means the government are guaranteeing up to 15 per cent of a mortgage loan and will repay this to the lender should the borrower default.

It is available to first-time buyers of any property (not just new builds) priced at up to £600,000 where the mortgage they are applying for is 91-95 per cent of the property price.

It is initially scheduled to run until 31 December 2022, with a review to see whether it should continue past that date. Many lenders have committed to taking part in the scheme, including HSBC, Lloyds Bank, Barclays and Santander.

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