Can I get Equity Loan during COVID-19?

Do you desire to own a home? Most likely you do. But maybe you feel overwhelmed when you think about the expense involved.

To help you buy your own home, the government offers equity loan. You can take an equity loan of up to 20% of the property price (In London, it can be up to 40%). Then, by combining the equity loan with the mortgage and your deposit, you can buy a new home. The deposit must at least be 5% of the property price.

Bear in mind that equity loan is not a set amount of cash. Rather, it is a percentage of the property price. So, when you repay the loan, you may have to pay more or less than what you borrowed depending on whether the price of your house went up or down.

For example, for a house worth £300,000, you get £60,000 (20%) as equity loan. When its time to repay the loan, if the value of the house increases to £350,000, you will have to pay £70,000 (20%) back.

The housing market in the UK is currently open. You can apply for equity loan under the new Help to Buy scheme. (Applications for the previous scheme had ended on 15th December 2020)

The new Help to Buy equity loan scheme (April 2021 – March 2023)

Previously, the Help to Buy equity loan scheme could be used by first-time buyers as well as home movers. The new scheme, however, will only apply for first-time buyers. Another change is that the maximum price of a ‘Help to Buy’ home will vary depending on the region. For example, in Luton, which comes under the South East Region, the maximum price of Help to Buy homes is £437,000.

The government offers equity loan only if the following is true:

  • The home you are buying is a new-build property
  • The home will be your main residence, not a second home or a home that you are buying to let
  • The price of the property is within the amount prescribed in the price cap for the region

Applications for the new scheme have started on 16th December 2020 and are now underway. If you need an equity loan and you think you qualify for it, take the following steps

  1. Reserve the home with the homebuilder
  2. Get the Property Information Form filled out
  3. Contact the Help to Buy agent in your area and hand him the form

The government will begin offering equity loans under the new scheme from 1st April 2021.

How do you repay an equity loan?

The equity loan is interest-free for the first five years. So, if you are able to pay the amount back within 5 years, it’s a great deal. Equity loan became popular for this very reason.

Starting from the sixth year, the interest is 1.75% and it slightly increases every year depending on the Retail Price Index.

The equity loan must be repaid in full (1) after 25 years, (2) when the mortgage term ends or (3) when you sell the house – whichever of the three scenarios comes first.

Note: The last date for the current Help to Buy scheme is 31st March 2021. However, considering the delays in purchase procedure due to the pandemic, the government has extended the completion deadline to 31st May 2021. The government has also made it clear that no further extensions will be made.

For any further enquiries please contact Aristone Solicitors at 01582 383 888.

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