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Help To Buy – Phase 1 – New Build

Phase 1 of the government’s Help to Buy scheme is the “Equity Loan” which is available for new build properties only.    In effect it is a shared ownership mortgage. 

The scheme will provide £3.5 billion of additional investment to help people into home ownership as well as giving a welcome boost to the UK’s construction sector.

The scheme is available to assist with the purchase of new homes valued at up to £600,000 in England.  A similar scheme in Scotland is available for properties valued up to £400,000 and Wales has yet to formally announce an Equity Loan scheme but is expected to do so soon.

The Equity Loan scheme is available both to first time buyers and to those looking to move. It cannot be used for buy-to-let mortgages. 

As with any traditional mortgage arrangement the buyer becomes the legal owner of their home and can sell it at any time. The government will provide an equity loan of up to 20% of the house value which will have to be paid back when the house is sold or at the end of the mortgage period – whichever comes first.   To purchase a property the borrower will need a minimum 5% deposit, a mortgage of up to 75% and a government loan of up to 20%. 

In the first 5 years of ownership there are no fees payable on the equity loan. From year six there is an annual fee payable.  In year six this fee is 1.75% of the loan’s value and this will increase every year by the retail price index plus 1%.

When the equity loan is repaid, it is not the original amount borrowed that has to be repaid, but a percentage of the property value equal to the percentage originally borrowed.  This may be more than the original loan amount depending on whether the house has increased in value.

If you thinking of buying your first property or moving house and would like independent mortgage advice, Graham Westhall at SWLaw Investment and Financial Planning Ltd will be pleased to offer you a free consultation. Graham is a Chartered Financial Planner with over 25 years’ experience of financial services.