Help to Buy equity loan scheme (2021-2023)

The Help to Buy equity loan scheme closed to new applicants on 31 October 2022 and applicants need to complete on their homes by 31 March 2023. We explain how the scheme works, key deadlines, who qualified and potential pitfalls, as well as the alternatives to Help to Buy.

Angela Kerr Director, Editor

What is the Help to Buy equity loan scheme (2021-2023)?

The Help to Buy Equity Loan scheme (2021-2023) lets you buy a new build home with a 5% deposit. When using the scheme you’ll borrow an equity loan from the government of up to 20% of the property’s value, up to 40% if the property is in London. This is interest-free for the first five years. And you’ll get a mortgage for the rest.

However this scheme closed to new applicants on 31 October 2022.

If you came to this guide hoping with help to buy your own home, check out our guide What Will Replace Help to Buy? which includes all the options. You may also find our guide to buying your first home a helpful place to start — we simplify the essential first steps  and what help you can access to enable you to buy your first home.

Help to buy scheme end date

In May 2022 the government announced the Help to Buy scheme end date will be earlier than originally announced. The scheme closed to new applications at 6pm on 31 October 2022. If you didn’t reserve your property and submit your Property Information Form to your agent by then you will no longer be able to use the scheme. This deadline should allow enough time for applicants to legally complete the purchase and get the keys to their home before the scheme ends on 31 March 2023.

What deadlines do I need to meet?

Under previous guidelines, housebuilders were required to reach practical completion by 31 December this year; this is known as the first longstop date. However, the government has extended this deadline by a month in certain circumstances to 31 January 2023 to ‘make sure people do not lose out because of delays to completing their homes’.

The 31 December deadline will be extended for homes where the homebuilder notifies the Department for Levelling Up, Housing and Communities in writing that it is unlikely to reach practical completion by 31 December; but will reach this on or before 31 January 2023. And practical completion takes place on or before 31 January 2023. Practical completion means the Help to Buy home is built and ready for the buyer to move into.

This extension is available for homebuyers with authority to proceed or authority to exchange in progress. And homebuilders need to contact Homes England before 20 December.

This aims to give homebuyers enough time to legally complete before the scheme ends on 31 March 2023 – the second longstop date.

Will help to buy be extended again?

The first Help to Buy Equity loan scheme was launched in 2013 and officially ended in March 2021. However it was then replaced by the current Help to Buy Equity Loan scheme (2021-2023). Both schemes let you buy a home in the same way but the current scheme has key differences to the old one: only first time buyers can use it and regional price caps were introduced. In light of this many people are asking will help to buy be extended again?

But the government has confirmed there are no plans to extend or replace Help to Buy: Equity Loan scheme. There is less demand for such a scheme now that 95% mortgages are widely available again.

What are the main alternatives to Help to Buy?

So what are the alternatives to Help to Buy? There are quite a few. There are a lot of options and schemes that still exist to help first time buyers -our guide on What will replace Help to Buy lists 14 options.

The list includes the government’s Shared Ownership scheme, where you can purchase a minimum of 10% in a property and pay rent on the rest.  A scheme set up by house builders called Deposit Unlock works in a similar way to Help to Buy, allowing first-time buyers or home movers to buy a new build home from a participating house builder with just a 5% deposit using a mortgage offered by a participating lender.

Our guide on What’s Replacing Help to Buy also lists a number of affordable mortgage alternatives, from the Barclays Springboard mortgage, to guarantor mortgages, Joint Borrower Sole Proprietor mortgages and more.

What are the Help to Buy interest rates?

Help to Buy interest rates are 1.75% in the sixth year after the initial five-year interest-free period. Help to Buy interest rates increase every year in April by adding the Consumer Price Index plus 2%. If you bought using the Help to Buy: Equity Loan (2013-2021) scheme, Help to Buy interest rates increase by adding the Retail Price Index plus 1%.

How does the Help to Buy Equity Loan scheme work?

Here are the key things to know about how the Help to Buy Equity Loan scheme works.

1. Are all first time buyers eligible?

No, not all first time buyers are eligible. You and anyone you’re buying a home with must:

• not own a home or residential land now or in the past in the UK or abroad
• not have had any form of sharia mortgage finance

This means if you are buying with a partner who has previously owned a property you will not be eligible. This will also include properties you may have owned in the past but have never lived in, for instance an investment property or a holiday home.

If you are married or in a civil partnership you will need to apply with your spouse or partner so you won’t be able to take advantage of the scheme by having only one name on the mortgage.

You will need to sign a legal declaration to confirm that you are a genuine first-time buyer.

2. Help to Buy (2021-2023): Regional price caps

Find out how much you can borrow with fee-free mortgage advice from award-winning mortgage brokers L&C. Start the process online or over the phone now

3. How does the Help to Buy equity loan work?

If you’re considering applying for the Help to Buy equity loan scheme before it shuts you need to understand about how the Help to Buy equity loan works:

• You borrow a percentage of your home’s value not a fixed amount
• If your home increases in value, so does the amount that you owe – the same is also true if the value falls
• You’ll need to pay a £1 management fee every month until the loan is repaid
• The first five years of the Help to Buy equity loan is interest-free
• After the interest-free years, you’ll be charged 1.75% on the outstanding amount as interest. This fee will increase each year by RPI plus 1%
• You only repay the interest not the equity. If you want to make a dent in the amount you owe, you need to make ‘staircasing repayments’, outlined below
• You don’t have to repay the equity until you sell your home, or you reach 25 years (whichever is earlier).

4. Help to buy mortgages

Apart from the Help to Buy equity loan you will need a repayment mortgage to cover the rest. There are a number of Help to Buy mortgage lenders including:

• Barclays
• Halifax
• NatWest
• Santander
• Nationwide Building Society
• Post Office
• TSB
• Virgin Money

Once you have spoken to a Help to Buy agent in the area you want to buy or a local developer registered with Help to Buy and are successful getting your loan, you can add this to your deposit and get a mortgage for the remaining amount you need.

Find the best mortgage deal for you today

Mortgage Finder – Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.

How do I apply for Help to Buy?

You can no long apply for Help to Buy Equity Loan. The scheme is closed to new applicants.

If you are partway through the application already, there are five steps to the process:

1. Firstly find an eligible new build Help to Buy agent
2. Next prepare to pay the associated fees:
   • A reservation fee (minimum £500)
   • A deposit on exchange of contracts (at least 5% of the property’s value)
   • Conveyancing fees and other costs due on completion
3. Complete a Help to Buy “Property Information Form”, available from the house builder
4. Then reserve the home
5. Send the signed Property Information Form and a copy of the builder’s signed reservation form to the Local Help to Buy Agent.

You’ll then need to go through the new build conveyancing process and your conveyancing solicitor will need to liaise with the Help to Buy agent at a few key points when you’re buying your new home.

For more general advice on what to look out for when buying a new build home, see buying off-plan and top tips for buying a new build

Is Help to Buy worth it?

There are many pros and cons to the Help to Buy scheme. This scheme can help people who might otherwise struggle to get on or move up the property ladder. But there are some concerns, particularly around risks of negative equity, which buyers will want to bear in mind:

• New build properties depreciate in the same way that a brand-new car does. You need to beware of house prices dropping and the risks of falling into negative equity.
• You will benefit most from this scheme if you can pay off the equity loan within the first five years, before the interest kicks in.
• There are other costs involved when buying a home such as stamp duty and legal fees and more costs of buying and owning you may not have thought of. This potentially adds up to 10% of the cost of purchasing the property.
• You need to ensure you’re able to afford a capital repayment mortgage alongside the fees and equity loan repayments (see our guide mortgages made simple). Interest only mortgages won’t be available for people buying with this scheme.
• Just because this is a Government scheme, it doesn’t mean you’ll get any more protection. It is your responsibility to keep up repayments on the mortgage and equity loan.
• If the home you are buying is leasehold, make sure there are no fire safety issues and ask your conveyancer to scrutinise the lease and look out for any onerous terms such as escalating ground rent. See our guide for more on leasehold problems.

How do you repay a Help to Buy Equity Loan?

Since the Help to Buy loan is interest-free for the first five years it’s advisable to repay as much as you can before this period ends.

You can make part repayments, known as “staircasing”, to reduce your ongoing costs when the interest-free period ends, and to start paying off the equity you’ve borrowed. Staircasing will also mean that you’re entitled to a greater share of the total sale proceeds when you sell.

So what is staircasing? Here’s what you need to know:

• You can make repayments at any time
• Repayments must be at least 10% of your home’s current market value
• Staircase payments may be subject to other criteria set by your lender
• Every time you want to make a repayment, an independent valuer must assess your property – and you’ll have to pay for this (£200)

For more advice on repaying your Help to Buy equity loan before selling read our guide on Selling a Home with a Help to Buy Equity loan

Can I remortgage a Help to Buy home?

After the interest-free five-year period, you may want to remortgage and either keep the equity loan from the government, or use a new mortgage to repay the Help to Buy loan. The latter option will increase the size of your standard mortgage but you’ll find more lenders and options available to you. For more advice on remortgaging your Help to Buy equity loan, see our guide on How to remortgage your Help to Buy.

Some homeowners will choose to remortgage and repay the equity loan because it means they will benefit from any increase in value – but they should beware that it may mean the monthly mortgage repayments go up.

What you should know about remortgaging with a Help to Buy equity loan:

• If you want to remortgage, you’ll need to pay a £115 administration fee to Homes England.
• Homes England’s Mortgage Administrator will need to approve any increase in your first charge mortgage.
• When paying back the equity loan, either through staircasing or when you come to sell your home, the sum you owe will depend on the most recent valuation of the property.
• Also not all lenders offer mortgages on Help to Buy homes. If you want to remortgage to get a better deal, while keeping the Help to Buy equity loan, you’ll find a much smaller range of products available to you.

We’ve partnered with the award winning L&C mortgage brokers. They’ll check the deals and criteria of 90+ lenders to find you the best remortgage deal.

Can I sell my Help to Buy home?

You are able to sell your home bought with the Help to Buy equity loan at any point. If you still owe money on the equity loan, this will need to be paid from a share of the sale’s proceeds. For example, if Homes England assisted your purchase with a 20% contribution, your repayment will be 20% of the total market value when the home is sold.

However you should be aware that if the value of your home has increased, the amount you need to repay will also increase. For example, let’s consider a home worth £200,000 and bought with a 20% government equity loan worth £40,000. If the value rose by 10% to £220,000, the amount borrowed would also grow by 10% and you’d need to repay the government £44,000 – an extra £4,000.

However, if the value of the home falls, then the amount you owe would also fall.