The Help to Buy equity loan scheme is slightly different to the mortgage scheme as you will be provided with an equity loan to boost your deposit to 25% in order to then secure a standard mortgage. The criteria to qualify for an equity loan are slightly different to than for a Help to Buy mortgage. In addition to the qualification criteria already mentioned, in order to qualify for an equity loan you also have to buying a new build property. The process is then that you provide a deposit of at least 5%, which is then topped up with a government equity loan of 20% of the price of the property, which then leaves you with a minimum of a 25% deposit to then be able to apply for a standard mortgage on the remaining 75% of the property.
You do have to be careful with an equity loan due to the interest rates that are charged on the loan. You get five years of having the loan interest free, but from the sixth year you then have to start paying interest. It is very important that you understand that the interest rate will increase every year, and so will the size of the equity loan, so this is really only a cost-effective option for people who can use the loan to reduce mortgage payments enough by getting a good interest rate on the mortgage to then save up enough to be able to pay off the loan and switch the entirety of the borrowing to a mortgage. While the interest addition to the loan may be reasonable for a couple of years, you will find that it will grow increasingly quickly and could be very substantial after 25 years, which is when it will need to be repaid in full.
