Equity Loans

How do equity loans help?

First time buyers who cannot afford a large deposit and cannot afford to purchase a new home outright may be eligible for financial help through equity loans that are provided by the Government's Home and Communities Agency (HCA) in association with new build home developers.

Who is eligible?

  • Householders earning £60,000 per year or less
  • Don't currently own a home
  • Have funds to put down a deposit, subject to conditions, and be able to pay purchase and moving costs.
  • Have no outstanding credit problems

What are the equity loan schemes?

HomeBuy Direct scheme was launched in September 2008. In 2011 the FirstBuy scheme was launched and is available on selected new build homes across the UK. The FirstBuy scheme is available from participating and Government approved UK house builders on selected developments and new homes. Many of these house builders are featured on What House? and you can search hundreds of affordable homes available from leading house builders. The equity loans are jointly funded by the Government and the house builder who is offering the scheme on their new homes developments.

How do the schemes work?

An equity loan can be taken out for up to 20% of the property's value. This loan is interest- free for the first five years and is payable within a set period of time. At least 80% of the house price should be met by the purchaser's deposit and mortgage that has been loaned by a mortgage lender. The remaining cost up to 20% of the property value is paid jointly by the Government and the house builder with the equity loan. When you sell your home, the percentage of the value that is owned by the Government and house builder is paid back to them. You will be able to buy a greater share in your property until you own the property outright which is known as `staircasing'.

Example of how an equity loan works

  Cost Percentage
Total house purchase price £180,000        100%
Buyer deposit £9,000 50%
Buyer Mortgage £135,000 75%
Equity Loan £36,000 20%

What to consider

An equity loan is paid back as a percentage of the value of your home. An equity loan means that the value of the loan you borrow is based upon the value of your property. The amount you owe on the loan will rise and fall with the value of your home depending on the property market.

The property's title will be in your name which means you can sell your property at any time. Out of the property sale value, the Government and house builder will receive the same share of your home's price when you sell it. When you pay back the equity loan, you are increasing the equity share that you have in the property and lessening the loan amount you have borrowed.

Equity loans are subject to fees. For the first five years you will not be charged fees. However after five years you will be charged a fee of 1.75% of the loan's value which will increase thereafter according to the Retail Price Index.

If you do not sell your property after 25 years, then you are required to pay back the equity loan.

Qualifying criteria for the scheme can differ.

How to apply

Search the affordable homes  that are available under this scheme and contact the house builder directly.

You will need to apply for an equity loan through your local HomeBuy agent. HomeBuy agents are housing associations who can assist people in buying homes. You can contact the HomeBuy agent who is in the area where you want to buy a property who will deal with your application.