Glossary · UK
What is Help to Buy Equity Loan?
A former government scheme providing an interest-free equity loan (typically 20%, or 40% in London) towards a new-build home for the first five years, after which interest becomes payable, now closed to new applicants.
Full Definition
The Help to Buy Equity Loan scheme allowed buyers of new-build homes in England to borrow a government equity loan -- typically 20% of the purchase price outside London, or 40% within London -- on top of a minimum 5% cash deposit and a repayment mortgage covering the remaining balance (75% outside London, or 55% in London), reducing the mortgage a buyer needed to arrange and, correspondingly, the household income needed to pass a lender's affordability assessment. The equity loan was interest-free for the first five years of ownership, after which an interest charge began to apply, starting at 1.75% of the loan amount in year six and rising each subsequent year in line with the Retail Prices Index plus 1%, and separately, a small monthly management fee applied from the outset. Because the loan is a genuine equity stake rather than a fixed-sum loan, the amount owed when it is repaid -- whether on sale of the property, on staircasing to buy out the government's share, or at the end of the mortgage term -- is calculated as the same percentage of the property's market value at the time of repayment, not the original cash amount borrowed. This means a homeowner whose property has risen significantly in value will owe considerably more in cash terms to redeem the equity loan than they originally received, even though the percentage share stays the same, a feature that has caused financial difficulty for some borrowers, particularly where property values rose faster than their income or ability to save towards repaying the loan. The Help to Buy Equity Loan scheme in England closed to new applications in March 2023 (having already introduced first-time-buyer-only eligibility and regional price caps in its final years), meaning it is no longer available for new purchases, though existing equity loan holders continue to be bound by their existing agreement, including the interest charges that begin from year six, until they repay or staircase out of the loan. Separate, broadly similar schemes operated with different rules and timelines in Wales and Scotland, and prospective buyers should check the current position in their nation, since replacement schemes and eligibility criteria change periodically.