Help to Buy equity loans approach 5th anniversary

Buyers, including many first timers, who signed up for the government’s Help to Buy equity loan scheme in its early stages will soon start being charged interest on their loans. The scheme was launched in April 2013 to help those with small deposits buy a new home and is due to run until 2021. Under the scheme, which is only available for new-build properties costing £600,000 or less, homebuyers only need to put down a 5% deposit. The government lends a further 20% of the property price interest-free for the first five years, which means buyers only need a mortgage for the remaining 75%. Those purchasing in London can apply for a government loan worth up to 40% of the property price, and so only need a mortgage for 55% of the property value once they’ve put down a 5% deposit.Interest chargedWhen the five-year interest-free period finishes, which it will from April onwards for those who applied for the scheme soon after its launch, interest is charged on the loan at a rate of 1.75%. The interest rate will increase every year by the rate of inflation, as measured by the Retail Price Index (RPI) plus another 1%. It’s thought that thousands of homeowners will start paying interest on their loans in April and the number affected will grow over time. Options for homeowners with Help to Buy equity loansThere are various different options available to those who are about to start paying interest on their Help to Buy equity loans. The first is to do nothing, and simply start repaying the interest owed. You will only be paying interest on the equity loan and not repaying any capital. Some homeowners may decide, however, that they want to pay off some or all of the equity loan, so that they can become the full owners of their property. Bear in mind, however, that you’ll need to get an independent valuation carried out before you can pay back the loan, and the bill for this could run to hundreds of pounds. That’s because the repayable amount will be equivalent to 20% of the value of your property now, rather than the 20% of its original value, meaning the government will take a share in any house price growth since it was purchased. That’s also true if your property has fallen in value though, so in that case you will pay a smaller amount back to the government than the original loan amount. Another option is to sell your home when you will use the proceeds to pay back the loan, although one of the hopes is that people will have used the scheme in the first place to buy a bigger property so that they could stay put for longer.