According to research conducted by Aldermore Bank more than half of prospective first-time buyers are confused by common housing market and mortgage jargon.

Data taken from Aldermore’s latest First Time Buyer Index, shows that more than 52% of prospective first-time buyers struggle to understand the Help to Buy equity loan.

In light of this we asked one of our advisors Alex Esposito to explain how the Help to Buy Equity loan scheme works. The Help to Buy Equity loan is designed to help people get on the property ladder with a smaller deposit and is available on selected New Homes. The Government can lend you up to 40% (20% outside of London) of the cost of your newly built home so you’ll only need a 5% cash deposit and a 55% mortgage to make up the rest. By borrowing 55% of the purchase price from a lender you are likely to get a competitive interest rate for your new mortgage. The scheme is available to both first time buyers and home movers who want to buy a newly built property with a price of up to £600,000. The scheme is run by Government approved Help to Buy agents whom will be able to support you through the process along with your mortgage broker. I’ve detailed the main pros and cons of the scheme in the table below:

Pros

• The money you borrow from the government is interest free for 5-years.
• During the first 5-years you will have relatively low monthly repayments due to the interest-free loan.
• The interest rates available from the lender will be considerably lower than if you only had a 5% deposit.
• Available to home movers and first time buyers.

Cons

• The government take an equity stake in your property. If you borrow 40% then the government will own 40% of your property.
• After 5-years you will start to pay interest on the equity loan if you haven’t re-paid it. This is at rate broadly in line with inflation.
• You have to buy a new build property.
• You are unable to let the property out whilst the government own a stake of your property.

The scheme can be quite complex and we have plenty of further information to convey, you can contact us via this page to discuss things in more detail or organise an appointment at our modern offices on the Isle of Dogs. As well as the Help to Buy Equity Loan, there is also a Help to Buy ISA. By saving money into a Help to Buy ISA the Government will provide first time buyers a bonus of 25% on the savings held within the ISA to be used towards the deposit of a new home. You need to have saved a minimum of £1,600 to be eligible for the bonus, with the maximum bonus available being £3,000 per person. The bonus can be used towards your first home purchase up to a maximum price of £450,000 (£250,000 outside of London)