Legal Q&A: what is a Help to Buy equity loan and how does repayment work?

Question: I am finding it a real struggle to save enough money for a deposit and cannot imagine ever being able to buy my own home. However, my boss has said that I should be able to get on the property ladder using a Help to Buy equity loan. What is that?

Answer: Help to Buy is a Government scheme designed to help people get on the property ladder.

To qualify you must buy a new-build home, the purchase price of which can be up to £600,000.

It must be your only property and after you complete the purchase you must not sublet, or let it out, and you must have a deposit of five per cent of the purchase price. Apply through your local Help to Buy agent.

The Government will provide you with an equity loan of up to 20 per cent of the purchase price, 40 per cent if you buy in Greater London, interest free for the first five years.

Accordingly, you will have 25 per cent or 45 per cent of the purchase price and can fund the balance of 75 per cent or 55 per cent by way of a mortgage.

The equity loan must be repaid when you sell the property, or when the mortgage term ends. You will actually repay 20 per cent or 40 per cent of the market value of your property at the time of repayment.

You could repay all or part of the equity loan at any time but the minimum repayment amount the Government will accept is 10 per cent.

Once the interest-free five-year period expires, interest becomes payable at 1.75 per cent, increasing by 1 per cent above inflation each subsequent year.

These answers can only be a very brief commentary on the issues raised and should not be relied on as legal advice. No liability is accepted for such reliance. If you have similar issues, you should obtain advice from a solicitor.

If you have a question for Fiona McNulty, please email legalsolutions@standard.co.ukor write to Legal Solutions, Homes & Property, Evening Standard, 2 Derry Street, W8 5EE. Questions cannot be answered individually, but we will try to feature them here. Fiona McNulty is a solicitor specialising in residential property.