What is the Help to Buy Equity Loan?
A Help to Buy equity loan has enabled many people to gain a foothold on the property ladder, helping them to have the security of home ownership that they may have previously been unable to afford.
Many buyers struggle to find a 25% deposit for their home. Through the Help to Buy Equity Loan Scheme, qualifying buyers will only have to pay 5% towards their deposit with the remaining 20% of the deposit being provided in the form of a loan by the government which will remain interest-free for 5 years.
This can be a very attractive proposition but as with everything, there are pros and cons, and the Help to Buy Scheme is no different. It is worth weighing up the full costs and implications before committing to anything, especially something as significant as buying your first home. We recommend that you seek advice from a financial advisor before entering into any financial commitment. In our blog below we discuss how applicable Help to Buy is for you, some of its advantages and disadvantages, and how important a valuation by a qualified RICS Chartered Surveyor is to the process.
Do you Qualify for the Help to Buy Equity Loan Scheme?
To qualify for a Help to Buy Equity Loan you must:
- Be a first time buyer or an existing home-owner looking to move
- Be buying a newly-built home with a price tag of less than £600,000
- Have a total household income not exceeding £80,000 pa.
- Not own any other property
- Have the funds to raise a 5% deposit yourself
If you qualify, great! But before you make a final decision about the Help to Buy Scheme, we recommend comparing it with your other options. Shop around and see what other property is available and how much deposit you would need to put down. Is it affordable? Is there a way that you can save the deposit yourself? New-build properties are often more expensive than comparable second-hand homes, so you may wish to consider a lower-cost option available on the property market that would better suit your needs, particularly if you can find alternative ways of raising your full deposit. It is also worth noting that new-build properties can often fall in value over the first few years of ownership and you may find that you owe proportionately more against your property when it comes to selling or paying back your interest free loan. If you wish to sell your new property shortly after purchase, you may also be competing with new-build houses on the same development and the original premium price you have paid may not therefore be easily achievable.
Can you afford it?
Although there are no repayments or loan fees due in the first 5 years of the Help to Buy Scheme, the amount you owe can still increase during that time due to the equity loan being dependent on changes in the housing market. So, for instance, if your house increases in value, so will the amount you owe. Even so, 5 years of interest free borrowing can still remain an attractive option.
You will still need to make your monthly mortgage payments during the 5 years, but no interest will be added to your Help to Buy loan. The first 5 years of home-owning can be financially strenuous, so the breathing space that the Help to Buy scheme brings is also advantageous.
Despite this, the cost of fees will be something you have to deal with further down the line. After 5 years you will start to be charged interest on the government loan. This starts at 1.75% and for each subsequent year your loan fee will increase by 1% plus any RPI increase. Most people give serious thought to planning for the increase in loan charges after the interest-free period comes to an end. You should therefore make sure you are in a position to be able to afford these additional financial requirements.
A new-build property via this scheme may make financial sense. For example, as you will only need to borrow 75% of the property value, it should place you in a stronger position to negotiate a better deal with your mortgage lender.
Re-paying your Help to Buy Government loan
Did you know that if you’ve used the Help to Buy Scheme, and at some future date wish to re-mortgage your home, start paying your loan or sell your home, then you legally need to get a mortgage valuation from a RICS qualified Chartered Surveyor who must also be registered as a valuer?
The Valuer must also be independent to an estate agent and any existing valuations carried out for bank or mortgage purposes will not be accepted. The valuation itself must include an inspection of the property’s interior and exterior, and the final report must be on headed paper, dated, addressed and signed by a RICS qualified surveyor and valuer.
As part of the RICS valuation, the Valuer must provide at least 3 comparable properties and their sale prices with regards to property type, size and age, and must be within a 2-mile radius of the home being valued.
Why Avery & Co?
At Avery & Co. we are members of RICS and we specialise in the valuation of property for the Help to Buy Scheme and our reports are fully compliant with government requirements. Our team are happy to guide you through what is potentially a complicated process and walk you through it with as little stress, upset or confusion as possible. A valuation for this purpose will only be valid for 6 months, but in the event of any delay, we will usually be able to provide an updated valuation for a nominal fee as long as no more than 12 months in total have passed since our original inspection.