Help to Buy Equity Loan

Aaron and Leanne bought their first home in Nottingham

 

The Help to Buy Equity Loan scheme is open to both first time buyers and existing homeowners. 

This scheme may be for you if:

  • You're buying your first home and are finding it difficult to save for that 'big' deposit.
  • You're looking to move to your next property but need help to get you onto the next rung of the ladder.

The scheme helps you to buy a newly-built home with an equity loan of up to 20% of the full price of the property. You won't have to pay any interest charges on this loan for the first five years and you own 100% of your own home from the start.

 

Help to BuY Equity Loan

 

How does the Equity Loan work?

You buy 100% of a brand new home from a developer who is registered for the scheme.  You fund 80% of the purchase through a combination of a mortgage and your deposit; the remaining 20% is covered by an ‘equity loan’ from the government. 

When you purchase your new home you will pay a monthly management fee of £1 which continues until the equity loan is repaid.

The equity loan is interest free for the first five years. 

From year six, you’ll start paying a monthly administration fee on the loan.  These are not repayments of the loan itself.

Your mortgage and deposit

You must have a mortgage to be able to buy using the Help to Buy Equity Loan scheme, as the equity loan has to be registered at the Land Registry as a second charge ranking behind the mortgage. 

You will need a minimum 5% deposit, along with a 75% mortgage, but you can put in a higher deposit to reduce your mortgage if you wish.  The minimum mortgage level acceptable for this scheme is 25% of the full purchase price. 

Before you start the process, we would recommend that you take some independent financial advice to find out how much you can borrow for a mortgage.  If you are unsure where to find a mortgage advisor, we have a panel of independent mortgage advice companies listed on our website here.

 

 

Am I eligible for the Help to Buy Equity Loan Scheme?

The Help to Buy Equity Loan scheme is open to both first time buyers and existing homeowners. 

There is no income cap for applicants and you can buy a new-build property with a value of up to £600,000.

You need to be able to afford and sustain the mortgage payments on your chosen property - we will check this when we receive your application but we would recommend that you take independent financial advice as early as possible so you can find out how much you can borrow.  If you are unsure where to go for mortgage advice you can find details of our panel independent mortgage advice companies on our website here.

If you already own a property (either in the UK or abroad), you must sell it as you cannot own two properties if you are using the Help to Buy Equity Loan Scheme. The disposal of your current home will be verified by your solicitor/conveyancer before you can proceed to exchange contracts on the Help to Buy home.

 

How do Help to Buy Midlands calculate affordability?

When we receive your Help to Buy Equity Loan application, we will check the documents to make sure they’re fully completed. It's important that you can sustain your purchase financially and are not over-stretching yourself so we will check to make sure you meet Homes England's sustainability criteria by using their Help to Buy equity loan calculator and guidance notes.

The Help to Buy equity loan calculator and guidance notes can be found here.

 

Charges and Repaying your Help to Buy Equity Loan

When you purchase your home you will pay an inital monthly management fee  of £1.00 from the start of the equity loan which will continue until the loan is repaid. 

The equity loan will be interest free for the first five years; from year six an administration charge applies which increases annually by RPI + 1% from year seven. Please note; you are not repaying the loan by paying this administration charge.

The total amount you’ll pay back on the equity loan relates to the property’s market value at the time of repayment. If you took out a 20% equity loan, the amount you pay back will be 20% of the current value of your property. So if the value of your homes goes up, the amount you pay back, also goes up.  If the value of your home goes down, the amount you pay back also goes down, so you are protected if property prices fall after you buy.

You must pay back your equity loan within 25 years (or when your mortgage term ends, if it is less than 25 years) or when you sell your home, whichever is sooner. There are no penalties for early repayment of your equity loan. You cannot transfer an existing loan to a new property.  

The government's Help to Buy Buyers Guide  will give you more information on repaying the loan and examples of how much you can expect to pay for the administration fee from year six.


Who do I contact once I’ve bought my home through the equity loan scheme?
Once your sale is complete, your details are transferred to the Help to Buy Mortgage Administrator – Target HCA.

Target HCA provides a single point of contact to:

  • Administer the payment of fees by buyers on the equity loans after five years of ownership.
  • Recover the equity loans repayments as owners sell and move on or staircase (‘staircasing’ is the term for the partial repayment of your equity loan).
  • Provide advice and approval for exceptional cases relating to subletting, remortgaging, and requests for additional borrowing

Target HCA can be contacted on 03458 480235 or visit www.myfirsthome.org.uk

Already bought a home through the Help to Buy Equity Loan scheme?

 Target Header

 

Once you have purchased your home through the Help to Buy Equity Loan scheme, your details are transferred to the Help to Buy Mortgage Administrator – Target HCA.

Target HCA provides a single point of contact to:

  • Administer the payment of fees by buyers on the equity loans after five years of ownership.
  • Recover the equity loans repayments as owners sell and move on or staircase (‘staircasing’ is the term for the partial repayment of your equity loan).
  • Provide advice and approval for exceptional cases relating to subletting, remortgaging, and requests for additional borrowing

Target HCA are also the people to contact if you have bought your home through:

  • FirstBuy
  • HomeBuy Direct
  • First Time Buyers Initiative
  • Armed Forces Home Ownership Scheme
  • London Wide Initiative.

Target HCA can be contacted on 03458 480235 or visit www.myfirsthome.org.uk

How do I find a Help to Buy Equity Loan property?

If you're looking to buy a new home using the Help to Buy Equity Loan the you will need to buy from a house builder that is registered with the scheme.

You can search for your new home using our online property search.

The Help to Buy Equity Loan scheme is for new build properties only. You can buy a new home up to value of £600,000 under the scheme.

How do I apply for Help to Buy Equity Loan?

 

Once you’ve reserved your new build home, you will need to make your application. 

Our online application form is the quickest and easiest way to apply for a Help to Buy Equity Loan.

Select your preferred option below:

Useful information to note before making your application: 

  • At present part exchange is not available on the Help to Buy Equity Loan scheme
  • You cannot own two properties at the same time under the Help to Buy Equity Loan scheme
  • You will need to be able to get a mortgage to buy through the Help to Buy Equity Loan scheme.

I've applied for a Help to Buy Equity Loan: what happens next?

When we receive your Property Information Form (PIF) and a reservation form, we'll check them to make sure they’re fully completed.  It’s important that you can sustain your purchase financially and are not over-stretching yourself so we will check to make sure you meet Homes England's sustainability criteria. 

Once these checks are completed, and provided your purchase meets sustainability criteria, you will be issued with an Authority to Proceed (ATP) document. Please do not apply for a mortgage prior to receiving this document.  Your Authority to Proceed document outlines the next steps. Please also read the Help to Buy Buyers Guide as this contains a lot of important information about the scheme.

Once you have Authority to Proceed (ATP) your mortgage advisor can then organise your mortgage and your solicitor will start the legal processes for you to buy your new home.

The Help to Buy Equity Loan Buying Process Explained in 5 Easy Steps

Watch our short film which explains the Help to Buy Equity Loan buying process in 5 easy steps.

 

How does the Help to Buy Equity Loan conveyancing process work?

If you’re buying a property using the Help to Buy Equity Loan scheme, Help to Buy Midlands will oversee the conveyancing process. (Conveyancing is the term for the administrative, financial and legal processes of buying and selling properties).  There are certain milestones where we will need to confirm to your solicitor that they can move on to the next stage.  Most of the time, we’ll be communicating with your solicitor so you won’t have to worry about these milestones, but if you would like to know more about the process, here are some details:

 

Applying:

So the first thing you will do is reserve your home with the developer and fill in the application form for the Help to Buy Equity Loan.  This application form is called a Property Information Form (PIF).  Most people will talk to a financial advisor or mortgage broker at this point.  You, or your financial advisor, will need to send electronic copies of your Reservation form and your PIF to us at htb@orbit.org.uk

You’ll need to find a solicitor to help with your conveyancing and we’d always recommend that you choose someone who is familiar with the equity loan scheme.  You can find a list of solicitors who regularly work on Help to Buy applications here but you are free to choose a different company if you want.

 

Authority to Proceed:

Once we’ve received your PIF and Reservation forms, we’ll check to make sure you’re eligible for the scheme and that you can sustain the purchase financially.  The government doesn’t want anyone to over-extend themselves financially and then have difficulties later paying their mortgage or interest payments. 

If we approve you for the scheme (and most people are approved), we’ll issue a document called an Authority to Proceed (ATP).  This document confirms to you, the developer and your solicitor that you meet the criteria for the equity loan scheme and the conveyancing process can begin.  We will send a copy of the ATP to you, your solicitor and the developer.  The ATP is valid for 3 months but most people will move onto the next stage sooner than this.

 

Authority to Exchange:

Your financial advisor will need a copy of your ATP so they can start to broker your mortgage for you.  Your lender will need to be signed up to the Equity Loan scheme – there are over 15 lenders who offer mortgages currently so you shouldn’t have difficulty finding one.  As part of getting a mortgage offer, your lender will want a current valuation of your property – you will probably have to pay for this valuation to be done. 

Meanwhile your solicitor will be completing various questionnaires and searches on your behalf.  They will also gather together copies of your Mortgage Offer, valuation and a form called a CML (Council of Mortgage Lenders) form or UK Finance form which lists any incentives the developer has offered you.  Incentives might include such things as paying your stamp duty, solicitor costs or other discounts.  The total value of any monetary incentives should not be more than 5% of the value of the property.

Once your solicitor has your Mortgage Offer, valuation and CML/UK Finance form and you are ready to exchange contracts, they will send copies of these documents to us with a request for authorisation to go ahead with exchanging contracts.  We’ll check that all the forms are accurate and consistent and then issue your solicitor with what’s called an Authority to Exchange (ATE).  Your solicitor will then exchange contracts between you and the developer.  Once you’ve exchanged contracts, you have up to 6 months to complete the purchase.  Some people will complete shortly after exchange but you may have to wait if your property isn’t ready yet.

 

Completion

When your property is ready and you and the developer know the exact date when you want to complete your purchase, your solicitor will apply to us for authority to go ahead.  We will again check to make sure that all the forms your solicitor has sent to us are accurate and complete and then we let the developer know that it’s ok to go ahead by issuing them with a form called a Confirmation to Developer (CTD).  This is the final milestone and once the developer has the CTD, they can go ahead and complete on your purchase.  Some smaller developers will need to allow enough time between exchanging contracts and completing for the equity loan to be transferred from the government.  We recommend that developers allow 15 working days for the money to come through.

 

Complicated?  Not really…

This may sound complicated but it really isn’t.  Most of the paperwork will be done either by us, your solicitor or your financial advisor.  Most of the time we’ll be communicating directly with your representatives, rather than having to come to you.   And once you’ve completed, you can move into your lovely new home.

I am a developer wishing to register for Help to Buy Equity Loan funding

Homes England logo If you are a house builder wanting to sell properties under the Help to Buy Equity Loan scheme you will need to register with Homes England. 

Further information is available here: https://www.gov.uk/government/collections/help-to-buy-equity-loan-guidance-and-application-forms or by watching a YouTube tutorial here

If you are a developer who is already registered for the Help to Buy Equity Loan scheme and needs guidance on how to:

1)  Reset your password

2) Input and submit your annual forecasts

3) Scheme/ claim processing

 Then you should watch the following playlist on YouTube: https://www.youtube.com/playlist?list=PLGw_Zy-F2yTu-GRJBxcKLqQ9fB9Yh1Lzg