The Homes and Communities Agency (HCA) is offering government equity loans to prospective home buyers in England who need help meeting deposit requirements on a new home purchase. These Help to Buy equity loans provide a buyer with up to 20% of the capital needed to complete the deal.
Thanks to the equity loan provided by HCA, buyers only have to contribute 5% for the initial purchase. This lower deposit requirement makes it possible for a wider range of tenants to become homeowners.
A tenant who can afford their rent may also be able to afford a mortgage payment. The problem is that they cannot fund the 20% deposit that is required by lenders offering a conventional mortgage.
This scheme allows for the proceeds from the equity loan to combine with the minimum 5% buyer deposit so that the requirements for a conventional mortgage can be met. The conventional mortgage would fund up to 80% (usually 75% through this scheme) of the purchase.
Zero interest is charged on the equity loan for the first five years. This allows for buyers the chance to build equity and savings and to strengthen their financial situation.
After five years, a fee is charged whenever the equity loan has not been fully repaid. This fee is based on the value of the home at the time of the purchase, though the fee itself is not incurred until after the five year interest-free period.
The fee starts in year six and increases slightly each year. This increase makes it ideal for many participants in the scheme to opt to staircase the loan through voluntary partial payments (HCA can explain how to do this) or repay it in full.
The full limit of the Help to Buy equity loan is £120,000 on a £600,000 new home. The equity loan is capped at 20% of the total amount.
Even with a 20% contribution from the scheme, the buyer must still provide 5% deposit towards the purchase. The effect can reduce the amount of the conventional mortgage down to as low as 75% loan-to-value.
There is no income limit on this scheme, nor is it limited to first-time buyers either. Anyone who can afford the monthly payments on the home could be eligible to purchase. An Independent Financial Advisor will confirm an applicant’s ability to afford the home and will work with buyers and Local Help to Buy Agents to facilitate the process.
Part of the purpose of the scheme is to increase the availability of affordable housing for new buyers. To accomplish this goal, all purchases must be new construction.
Home builders must be registered to sell Help to Buy homes in England. Homes may either be newly built or still under construction.
Home builders who advertise that they are registered as Home to Buy partners can help with the initial application process. Those who would like to get help directly with a Local Help to Buy Agent may do so through one of the following providers.
Anyone who has completed the sales process may speak with the central location for the Post Sales Agent. Enquiries may be directed to 0845 470 0121.
The Help to Buy equity loan scheme is a service of Homes and Communities Agency (HCA).
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