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Pros and Cons of the Help to Buy: Equity Loan Scheme

The rise in property prices has made it increasingly difficult for people to become homeowners. The term ‘Generation Rent’ was coined to describe the young adults who have been priced out of the housing market due to increasing house prices and a large proportion of income being spent on rent. In order to tackle this, the government introduced a range of schemes which aim to make purchasing a property more affordable. One of these options include the Help to Buy: Equity Loan scheme. Are you contemplating purchasing a Help to Buy property and utilising the Equity Loan scheme? Or, perhaps you’re just keen to find out a little more about this topic? We’ve compiled some information on the scheme and included some of the pros and cons that come with it. 

What is a Help to Buy Equity Loan?

A Help to Buy: Equity Loan is a government-backed scheme which was developed to help first-time buyers. An equity loan means that the government owns a percentage of your home until you have fully paid off the loan. The percentage that the government owns will always stay the same. However, if the property value rises or falls then the government’s share will rise or fall with this. 

Typically, the government will provide a 20% loan and the buyer will be required to put down a 5% deposit, a 75% mortgage will then make up the rest. In London, the government has upped the loan amount to 40% to reflect the higher property prices in the Capital. This scheme is only available on new build developments where Homes England have an agreement with the developer. There are also regional price caps to be aware of too which means that the property value cannot exceed these caps. 

Here are some of the pros and cons of the Help to Buy: Equity Loan… 

Pros of the Help to Buy: Equity Loan...

  • You may be able to access more competitive mortgage deals 
  • You’ll only need to raise a 5% deposit of the full purchase price
  • The first five years of the equity loan are interest-free 
  • You’ll have the option to reduce your loan when you can 

Cons of the Help to Buy: Equity Loan… 

  • The amount you owe isn’t fixed and will fluctuate with the housing market 
  • Your loan will become more expensive over time
  • Only certain lenders will offer Help to Buy mortgages
  • Only suitable if you can afford mortgage repayments for the value of the entire property

If you’ve purchased a Help to Buy property and you’re considering selling, remortgaging or staircasing (upping your amount of equity), you’ll need a Help to Buy valuation report.

Morgan Sloane is an independent, RICS registered Chartered Surveyor providing Help to Buy valuations in Essex and the surrounding areas. We have over 20 years of experience in producing accurate home valuations reports and will be happy to guide you through the process.

If you need to book a Help to Buy valuation report or you simply require further information, please
get in contact with one of our team. 

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