Step 1 – Choose your new home
Before applying for a Help to Buy equity loan, you first need to choose a new build home that fits your requirements and financial circumstances.
At this stage, you will also be asked to see an Independent Financial Advisor to go over your financial status and look at what mortgages are available to you, to confirm your ability to afford the property in question.
Step 2 – Help to Buy process the application
Your local Help to Buy Agent will look over your application, and will consider the following:
- Affordability: can you afford the principal mortgage payments on a monthly basis? This is based on the Independent Financial Advisor’s assessment.
- Ownership: have you signed a declaration to confirm the new property will be your only residence? You can only proceed if the new home will be the only property in your ownership.
Within 4 working days of the submission of your application, you will receive an ‘Authority to Proceed’ document if your application is successful. You should let the IFA know so that they can proceed to make a full mortgage application on your behalf with the chosen provider.
This will be accompanied by a pack containing instructions for your solicitor and legal documents, which the solicitor should go through with you.
Step 3 – Exchange contracts
A solicitor must act on your behalf throughout the purchase of your home, handling the exchange of contracts and transferring of your own deposit and the money from your mortgage lender to the seller, and in this case, the home builder.
Your solicitor will also handle the transfer of the Help to Buy equity loan to the home builder.
Based on the full mortgage application you submitted (step 3), you will have received a mortgage offer from the lender for the amount they have agreed to lend you. You will sign the sale contract and Help to Buy equity loan, and the solicitor will check to make sure the combined total of your deposit, the equity loan and the mortgage offer are in line with the required amount based on the issued ‘Authority To Proceed’ document.
The solicitor can then request that the contracts are exchanged. At this stage, you will pay your deposit to your solicitor, and the government and mortgage lender will both release their agreed funds
The exchange of contracts means you are now in a legally binding contract to complete the home purchase by the agreed date.
Depending on the build stage of your new home, the builder will give you a completion date. This is when your home will be ready to move in to, and this will serve as the agreed sale date.
NB: While your home is being built, the exchange of contracts can still take place and must happen within 3 months of the Help to Buy application being submitted. The completion of the property must fall within 6 months of the exchange.
Step 4 – Complete the sale
On the completion date, the funds will be transferred, and the home will be legally in your ownership. Soon enough, you will be able to collect your keys.
Your solicitor will confirm with the local Help to Buy agent that the sale has completed. At this stage, a second charge is registered on your home. This entitles the Homes and Communities Agency (the lenders of the equity loan) to a share of the proceeds of the future sale of the house or the value after 25 years (whichever is earlier).
The percentage will be equal to the percentage of the home value that was initially borrowed. I.e. if your equity loan is 20% of the home price at purchase, you will need to pay the Agency 20% of the sale price of the property at the time of sale (if you sell within 25 years). If you still own the home after 25 years, you will owe the Agency 20% at that time.