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Help to Buy London Equity Loan

How does it work?

The ‘Help to Buy’ scheme is an equity loan provided by the Government. They lend you up to 40% of the cost of your new build home, so you will need a minimum 5% deposit and a 55% mortgage to make up the rest.

For this scheme, you must have a mortgage, which will be the first charge, as the equity loan can only be a second charge. The equity loan is for a maximum of 25 years or before if the property is sold or the mortgage is redeemed, whichever term is the shorter of the two.

You will not be charged any interest on the 40% loan for the first five years of owning your home. However, a management fee of £1 a month will be applicable from the date of purchase. From year six, a fee of 1.75% is payable on the equity loan, which rises annually by RPI (Retail Price Index) inflation plus 1%.

Example:

20% Equity Loan for a home purchased for £200,000.

If the home in the example above was sold for £210,000, you would get £168,000 (80%, from your mortgage and the cash deposit) and you would pay back £42,000 on the loan (20%). You would need to pay off your mortgage with your share of the money.

You would need to check on the current property prices in London. From the 1st of February 2016, the Government increased the upper limit for the equity loan. It gives new home buyers within Greater London from 20% to 40%.

With London ‘Help to Buy’, you'll need to contribute at least 5% of the property price as a deposit, the Government will give you a loan for up to 40% of the price and you'll need a mortgage of up to 55% to cover the rest.

Example:

Equity Loan of 40% on the property value of £400,000

How do I pay back the Help to Buy London equity loan?

  • You must pay back the loan back after 25 years or when you sell your home

  • You will not be charged any interest on the 40% loan for the first five years of owning your home.

  • However, a management fee of £1 a month will be applicable from the date of purchase.

  • From year six, a fee of 1.75% is payable on the equity loan, which rises annually by RPI (Retail Price Index) inflation plus 1%.

  • Cancel any advertising for the letting (once contracts have been signed)

Who is eligible?

  • Equity loans are available to first-time buyers as well as homeowners looking to move.

  • You cannot have a deposit lower than 5% of the full purchase price.

  • The maximum income multiple for a ‘Help to Buy’ purchase is 4.5 times your household joint or single income. The mortgage taken must be on a repayment basis and cannot be interest-free.

  • Your debt to household income ratio cannot be more than 45%

  • All ‘Help to Buy’ applicants will go through a financial assessment.

  • ‘Help to Buy’ London will carry out a sustainability check when you send your application by using the Calculator provided by the Homes and Communities Agency

  • You cannot part exchange your current home to buy a new home under Help to Buy.

  • You must not own any other property at the time you buy your new home with a ‘Help to Buy’ equity loan

  • You will not be able to sublet a home purchased under ‘Help to Buy’.

  • The home you want to buy must be a new build, advertised as ‘Help to Buy’ by a ‘Help to Buy’ registered developer, with a maximum price of £600,000. ‘Help to Buy’ assistance is unavailable for new builds that are not ‘Help to Buy’ registered.

  • This particular scheme is available in England only. There is ‘Help to Buy’ schemes available in Wales and Scotland; however, each national ‘Help to Buy’ scheme has varying terms. Please keep this in mind for any prospective ‘Help to Buy’ purchase.

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