Martin Lewis warns first time buyers about terms of Help to Buy equity loan
Getting on the property ladder isn’t easy, but luckily the government has stepped in over recent years with a helping hand.
The new Help to Buy Equity Loan for 2021 to 2023 is now available for first-time buyers who want a new-build home.
And, the loan lends buyers up to 20% (or 40% in London) of the cost of a home with customers paying a deposit of 5% or more and a minimum mortgage of 25%.
The loan is interest free for five years and then an interest rat of 1.75% is added from the sixth year rising with inflation.
Those eligible for the the loan can reserve their homes from December and will be allowed to move in from April 1.
Regional price limits are set at 1.5 times the average first-time buyer price in each area.
In London the cap is £600,000 while in the North East it sits at £186,100.
However, despite the scheme giving people a leg up onto the housing ladder, financial expert Martin Lewis isn’t thrilled with the set up.
Issuing a stark warning on his ITV show, the guru explained that taking out the equity loan means that the government owns part of your new home.
If property prices go up then you have to repay more plus interest.
Basically, if your loan is the equivalent to 20% of the value of the property, the government owns this 20% until you repay them.
If the value of the house rises, so does the value of the fifth of your home they own.
So you have to pay back more money.
Martin said: "The government loan that you get is interest free for five years – that's great. But after that it charges interest.
"1.75 per cent from that first year (sixth year) and then it goes up by inflation each year after that."
We're sure the loan is still a great option for many, but it's important to know what you're signing up for.
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