The Government Extends its Equity Loan Scheme Until Next February

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Added on October 1st 2020

The government recently extended its Help to Buy equity loan scheme. This means that buyers with deposits of at least 5% have until February 28 2021 to buy a new-build property. The deadline for the legal completion of sales remains unchanged at March 31 2021.

The scheme should have been ending at the end of 2020, but construction delays caused by the covid 19 pandemic put almost 20,000 Help to Buy sales in jeopardy. The government decided that an extension to the scheme was a good solution.

How does Help to Buy work

Launched in 2013, Help to Buy was aimed at people who could afford mortgage payments but who found it difficult to save up the 20% deposit usually needed to secure a property.

The Equity Loan scheme means that buyers need to raise only a 5% deposit, with the government lending them up to 20% of the property’s value. This portion rises to 40% in London. 

Higher deposits help buyers to access better mortgage rates as they’re borrowing significantly less. 

The buyers pay back the loan when they sell the property, or, if they stay in the property for more than six years, they start to make repayments. The loan is index-linked with 1% on top.

Lots of buyers

The scheme has helped almost 275,000 first-timer and second-step buyers to purchase properties. They paid an average of £305,414 and more than half of the applicants had household incomes of £20,000 to £50,000.

The Help to Buy ISA

Another part of the scheme – the Help to Buy ISA – involves the government topping up a first-time buyer’s savings by 25% up to the value of £3,000. This ISA is no longer open to new applicants; it’s been replaced by the Lifetime ISA which actually offers a larger bonus.

What else is changing?

The current Help to Buy scheme runs out in early 2021 and the new version will only be available to first-time buyers. At present, second-steppers can apply and they do, accounting for around 20% of all Help to Buy sales.

The newer scheme, which will run until March 31 2023, also has stricter price caps.

The current scheme allows buyers to purchase new-build homes worth up to £600,000. From April 1 2021, various regional caps come in. In the north-east, the cap will be £186,100 and in the south-west it’ll be £349,000. 

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