With the first Help-to-Buy Scheme coming to an end, the government's new Help-to-Buy equity loan scheme is due to open for applications on December 16th 2020. 

The new Help-to-Buy scheme is designed to help people purchase a new-build property with a deposit of just 5%, where the government will top up with a 20% equity loan, rising to 40% in London. The new scheme is available for first-time buyers only and can only be used for new build properties.

The new scheme is due to run until 2023. With the government stamp duty holiday and with lenders bringing more mortgage products for first-time buyers since the initial lockdown, this makes a good proposition for first-time buyers looking to move up the property ladder. 

Both the deposit and equity loan will enable buyers to qualify for a 75% loan-to-value (LTV) mortgage, which offers a lower rate of interest than mortgages with higher LTV. Although applications can be made from December 16th, the new scheme will effectively start on April 1st and run for two years. 

The government's decision to limit the new version of the Help-to-Buy scheme for first-time buyers, is based on the fact that it wants to assist those who need help to get onto the property ladder. However, other government schemes are open to buyers, which are not limited to first-time buyers only.

Unlike the previous scheme, where the purchase price was questioned by many, the new scheme introduces a regional pricing structure that places a cap on the property's purchase price. In essence, buyers will not be able to use the scheme to purchase a property worth more than 1.5 times the average first-time buyer property price for that region.  

Region Price cap for Help to Buy 2021

North East - £186,100

North West - £224,400

Yorkshire and The Humber - £228,100

East Midlands - £261,900

West Midlands - £255,600

East of England - £407,400

London - £600,000

South East - £437,600

South West - £349,000

The decision to limit the scheme for new-build properties has been based on the fact that housebuilders have to comply with more stringent conditions, including the Consumer Code for Home Builders, and will have to belong to the New Homes Ombudsman, which is due to launch in 2021.

This means that first-time buyers who are using the government's money to move into a property, can move into a property that offers warranties and shouldn't face any unexpected repair bills.

Although the loan is interest-free for the first five years, borrowers will have to pay a management fee of £1 a month for the life of the loan. Upon the interest-free period, an initial interest rate of 1.75% will apply, rising each year by inflation measured by the Consumer Price Index, plus an additional 2%. 

The equity loan only has to be paid in full once the property is sold or the mortgage has been paid in full. For those who can, they are able to pay the equity loan sooner, however, payments must be at least 10% of the value of the property at the time of payment. An administration fee is also applicable when making these additional payments. 

The amount payable for the equity loan will rise or fall in line with the property's value at the time. In essence, a buyer may have to pay more in the end, if the property price has increased, or may have to pay less than the initial loan, if the property price has decreased. 

If you are a first-time buyer, and are looking to purchase a new home, speak with one of our property experts today by calling us on 0116 275 8888. 

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