Those looking into home ownership schemes should be aware that some major changes have taken place which haven’t been widely advertised. The big one is that First Buy equity loans have been phased out and replaced by Help to Buy equity loans. With these new loans, you will purchase your new build home with a deposit of at least 5%, a mortgage of at least 75%, and the remainder being paid by the government with an equity loan.
The Help to Buy loans are available to both the first time buyer and those seeking to move home for new build homes that have a value of up to £600.000. One of the terms and conditions of purchasing a home in this way is that you cannot sub-let the home while there is still an outstanding mortgage.
If you want to sell it, however, then that is no problem as the home is in your name and you are free to sell it whenever you want. You have to pay off the equity loan when you sell the house or when your mortgage comes to an end, whichever comes first. Another alternative is that you can pay back some, or all, of the equity loan without putting your home on the market.
If you want to make a partial payment, you can pay back either 10 or 20% of the total amount of the equity loan, as long as the loan equates to at least 10% of your homes value. If you want to pay back the loan in full then have a chat with your Home Buy agent and lender to make a special arrangement.
A typical example of how these loans work is as follows; the home you wish to purchase costs £200,000, you put down a 5% deposit of £10,000, get a 75% mortgage of £150,000, and the remaining 20% is covered by a £40,000 equity loan.
If you then went on to sell this home for, say, £210,000, you would get back £168,000, which is 80% of your mortgage and the cash deposit, and the other 42% will be paid back on the loan (20%). You will then have to pay off your mortgage from the share of the money that you have received.
A big plus with equity loans is that you are not charged any fees during the first 5 years that you own your home. During the 6th year, you will be charged a fee which equates to 1.75% of the value of the loan then after this the fee will increase on a yearly basis.
The increase is decided by the use of the retail price index plus an extra 1%. Your Home Buy agent will make contact with you before the fees are due to start in order to set up monthly payments from your bank. You will then be sent a yearly loan statement, but bear in mind that these fees do not count towards the payback of your loan. If you would like to purchase a home using an equity loan then your first step is to find a Home Buy agent in the area you wish to live in.