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H2B: Equity Loan
Help to Buy equity loans are open to both first-time buyers and home movers on new-build homes worth up to £600,000. You cannot sublet your home, and you must not own any other property at the time of purchasing your Help to Buy: Equity Loan home. Part Exchange deals are also not approved.
Example of a purchase with an equity loan scheme
Property purchase price: £200,000
Your mortgage: £150,000 (75%)
Cash deposit: £10,000 (5%)
Your equity Loan: £40,000 (20%)
If the home in the table above sold for £210,000, you’d get £168,000 (80%, from your mortgage and the cash deposit) and pay back £42,000 on the loan (20%). You’d need to pay off your mortgage with your share of the money.
Equity loan fees
You won’t be charged loan fees for the first 5 years of owning your home.
In the 6th year, you’ll be charged a fee of 1.75% of the loan’s value. After this, the fee will increase every year. The increase is worked out by using the Retail Prices Index (RPI) plus 1%.
Fees don’t count towards paying back the equity loan.
Selling your home and paying back the loan
The home will be in your name, which means you can sell it at any time. You’ll have to pay back the equity loan when you sell your home or at the end of your mortgage period – whichever comes first.
You can also pay back some of your equity loan without selling your home. You can pay back either 10% or 20% or the total amount, so long as the loan is worth at least 10% of the value of your home.
Key eligibility criteria for the mortgage and property to qualify:
• A residential mortgage (so you must be planning to live in the property and not rent it out)
• A new build property (i.e. not used or pre lived in)
• Property in England (other schemes available in Scotland and Wales)
• Only property – you cannot have interests in other homes (so no second homes)
• Purchase value of the property no greater than £600,000
• Repayment mortgages only (no interest-only mortgages)
AND
• you must pass the lender’s checks as to affordability of the repayments for both the mortgage and the equity loan
How long does the scheme last?
New deals under the scheme expected until March 2016, but the scheme could end sooner if all the funding the government has put aside to support the scheme is used up.
More information can be found at www.helptobuy.org.uk.
H2B: Mortgage Guarantee
How it works
The scheme works by letting lenders buy an insurance policy against non repayment from the government on mortgages where a borrower has a deposit of between 5% and 20%. This has encouraged banks to offer more customers low deposit mortgages.
The guarantee is provided to your lender – not to you.
Example with a £200,000 priced home – essentially you get a £190,000 mortgage and put down a £10,000 (5%) deposit.
Key eligibility criteria for the mortgage and property to qualify:
• A residential mortgage (so you must be planning to live in the property and not rent it out)
• UK property
• Only property – you cannot have interests in other homes (so no second homes)
• Purchase value of the property no greater than £600,000
• Repayment mortgages only (no interest-only mortgages)
AND
• you must pass the lender’s checks as to affordability of the repayments
• have no history of difficulties in meeting past debt payments.
How long does the scheme last?
New deals under the scheme expected until January 2017, but the scheme could be changed or pulled before then as Bank of England monitor the UK economy and housing market.
More information can be found at www.helptobuy.org.uk.