29 Jun 2021 • 3mins • Yolt

Could a Home Equity Loan help me get on the housing ladder?

Could a Home Equity Loan help me get on the housing ladder

So you’re ready to get on the housing ladder, but saving the deposit just feels impossible. A Help to Buy Home Equity Loan could be your answer – but it’s not right for everyone.

What is the Help to Buy Home Equity Loan?

Put simply, a Home Equity Loan or ‘second mortgage’, lets you borrow against the equity of your home. For first-time buyers in England, this means you can borrow up to 20% of the value of a Help to Buy property, completely interest-free for the first five years, giving you the deposit you need to get going.

Sounds great, right? It can be, but there are a few key things you’ll need to know:

1. First-time buyers only

You’ll only be eligible for this scheme if you’ve never owned a property in the UK or abroad. If you’re buying with a partner, this applies to them too.

2. There’s a max property price

The price of the property you can buy will depend on where you want to live. In London, for example, you can use the Help to Buy Equity Loan to buy a property worth up to £600,000. However, in the North East of England, you’ll only be able to buy up to £186,100.

Here’s the full breakdown:
• London: £600,000
• South East: £437,600
• East of England: £407,400
• South West: £349,000
• East Midlands: £261,900
• West Midlands: £255,600
• Yorkshire and The Humber: £228,100
• North West: £224,400
• North East: £186,100

3. You have to be buying a new-build

This scheme is reserved for new-build homes only. But that doesn’t mean it’s available on ALL new build homes. Find out which homes are available in your area through a Help to Buy agent.

4. You still need a 5% deposit

To qualify for the scheme, you’ll still need a 5% up-front deposit to borrow up to 20% of the value of the property (40% in London). You can then apply for a mortgage to pay the remaining percentage of the property.

5. Equity loans are interest-free – but only in the beginning

The equity loan you borrow to boost your deposit is interest-free for the first five years. That means if you pay it back in full before the five year deadline, you won’t pay a penny in interest.

Beware though, if you don’t manage to pay it back in that time, your rate of interest will grow every year, potentially adding £100s to your initial loan.

6. If the value of your home goes up, you could end up owing more

The percentage loan you take out stays the same no matter the value of your property. That means if your house price rises, the value of that 20% loan you took out initially rises too.

Can Yolt help me speed up saving for my deposit?

Yes, the Yolt app is packed with features to help you reach your saving Goals faster. Jar Boosters and Habit Builders won’t only help you get into the habit of saving, they’ll even do some of the work for you.

Need more tips to help you on your way? Check out our essential guide to drumming up that deposit.