The Help to Buy equity loan scheme has already helped over 130,000 people buy a brand-new home, and the Government's recent pledge to plough a further £10 billion into the scheme could more than double that figure. Could you benefit?
The Help to Buy equity loan scheme enables borrowers to buy a new build home with a deposit of just 5%, which with the help of a Government loan worth 20% of the property's value allows them to get a mortgage at 75% loan-to-value (LTV).
This means they're able to secure a mortgage with far lower rates than they'd be able to find at 95% LTV, but with the same 5% deposit. And thousands have benefited; figures from The Treasury show that more than 130,000 completions have already taken place with the help of an equity loan, with 81% of those being first-time buyers. This shows that the support is truly going to where it's needed, and there could be more to come.
Earlier this week, the Government announced that it was investing a further £10 billion into the equity loan scheme "due to the popularity of [it] across the country", which is expected to help a further 135,000 people buy a home by 2021.
More details are set to be revealed in November's Budget, but anything that can help more people get on the ladder has got to be good news, and it'll be particularly welcome to those currently saving for a deposit and hoping they'll be able to make the jump in the next few years. But just how necessary is it?
Can I not buy a new build home without it?
Some may be wary of taking on a Government loan on top of a mortgage, yet if you want to buy a new build home and get on the ladder sooner rather than later, it could be a vital line of support.
For starters, most lenders won't offer mortgages on new build homes unless you've got a deposit of at least 15% saved up (which could rise to 25% if you're after a new build flat), which means securing a 95% LTV mortgage on such a property will be practically impossible. Therefore, if you've only got 5% and want a new build home – and don't want to wait until you've saved up enough for a mortgage at 85% LTV – the Help to Buy scheme will be your only option.
You can of course buy another type of home with a deposit of just 5%, but you won't be able to get a new build property. It's also worth bearing in mind that mortgage rates at 95% LTV will be far higher than at 75% LTV – which is the kind of mortgage you'll get with Help to Buy – so it could be a lot more expensive over the long term.
Then there's the fact that the equity loan is interest-free for the first five years, and it only needs to be repaid on sale of the property or after 25 years (whichever is sooner), so for many people, it could be a cost-effective way to get on the ladder.
It of course won't be for everyone, and you may prefer the possibility of buying an older property, so it's worth finding out more about the scheme and your mortgage options elsewhere.
Sam: 5th Oct 2017 14:13:00
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