Help to Buy Scheme: Why the Scheme is Misunderstood by many

The Government has a number of schemes set up to help people buy affordable homes. These include the Help to Buy Equity Loan which launched in April 2013.

The Help to Buy equity loan scheme was first set up by the Government in 2013. It aimed to help first-time buyers and property owners purchase a new build home with only a 5% deposit. Although a new version of this equity loan scheme has been introduced, so there are changes that need to be considered.

Help to Buy Equity Loan

First-time buyers in England can apply for a Help to Buy Equity loan, as long as they have a 5% deposit. They will then be able to borrow up to 20% of the property value. This loan is interest-free for the first 5 years.

However, it has been announced that in order to use this loan, a house must be reserved by the end of October this year, which is two months earlier than expected.

The scheme run by Homes England, changed the information on their website to update home builders on the new deadline.

The application will now close on the 31st of October 2022 at 6pm.

This is expected to give first-time buyers enough time to exchange by the 31st March 2023.

This equity loan is only available for first-time buyers
Equity loans are interest-free for the first 5 years
The maximum price of the property you can buy depends on the region of where the property is. For the West Midlands, this is a max of £255,600 and for the North West, this is £224,400.
This equity loan is only available on new-build homes and only on Help-to-Buy registered home builders
You will need at least a 5% deposit
The equity loan allows you to borrow up to 20% of the sale value of the property (40% for London)
If you receive the equity loan, you’ll still have to be accepted for a mortgage to cover the rest of the value of the property
You will need a mortgage for the remainder of the sale price of the property. (up to 75%, or in London 55%)
The Equity loan is separate from your mortgage, so you are effectively taking out 2 separate loan agreements
If you sell your home, you must pay the same percentage of the proceeds as the initial equity loan. E.g. if your HTB equity loan was 20%, you must pay 20% of the proceeds of the future sale. So, if the price of your home increases or decreases, then so will the amount you end up paying.
The HTB equity loan must be paid in 25 years, or earlier if you sell your home
From year 6, (after 5 years interest-free), you will be charged 1.75%, and then from year 7, you will be charged 1.75% + CPI (Consumer Price index) + 2% (1% if you took out the loan before Dec 2019)

However, the version of the scheme was ended, and replaced with a new version that will run until the end of 2023.

This scheme meant that homebuyers could benefit from an equity loan of 20% of the total value of the property, or 40% of the property, and this amount is interest-free for 5 years. Therefore taking out a mortgage for the remaining percentage.

E.g.
Deposit: 5%
HTB Equity loan: 20%
Mortgage: 75%

The old HTB equity loan VS the new HTB equity loan

The old scheme was open to first-time buyers and existing homeowners, but the new scheme is only available to first-time buyers.

Secondly, the Help to Buy scheme now comes with regional price caps, whereas before there was a blanket £600,000 price cap. For example, for the West Midlands, this cap is £255,600 and for the North West, this cap is £224,400. Meaning if the property is above the cap for that area, then the scheme cannot be used.