Page 1 of 6 The Help to Buy Equity Loan Scheme What you need to know before you go ahead What is the Help to Buy Equity Loan scheme? The Help to Buy Equity Loan scheme is a Government backed programme designed to help people who have smaller deposits to buy a newly built home in England. The scheme is managed by the Homes and Communities Agency (HCA) who are the national housing regeneration agency for England. With a Help to Buy Equity Loan; n You own 100% of the property n Not restricted to key workers n Available to both First Time Buyers and Home Movers n Available on both houses and flats/apartments Do I qualify under the scheme? If you can answer yes to all the following questions, and you can meet Santander s current lending criteria, you may be able to buy a property under the scheme. n Is the property you want to buy a new-build property in England? n Is the property included in the scheme? If in doubt, speak to the builder or developer about whether they take part in the scheme How does the scheme work? n You need a deposit of at least 5% of the purchase price. n You buy your new home with up to 75% of the cost met by a Help to Buy capital and interest repayment mortgage provided by Santander. Santander Help to Buy mortgages are available with both fixed and tracker rates from Santander for Intermediaries through your Financial Adviser. Our Help to Buy mortgages are not available through Santander branches or over the telephone. n The rest is funded by the Government through an equity loan which is interest free for the first five years of the scheme, after which you will be charged interest. The equity loan can be repaid in full at any time or you can make a partial repayment but it must be a minimum of 10% of your home s market value at the time the payment is made. This means you will have two loans in place to finance your home; n A mortgage with Santander, and n An Equity Loan from the Homes and Communities Agency (HCA) As the two loans are managed separately by two different providers, you will pay two separate direct debit payments. So it s important that you remember from year 6, you will also need to repay the interest on your equity loan monthly, as well as the monthly repayment you have been making on your mortgage. n Is the price of the property 600,000 or less? n Will the property be your only home (not a second home or a property you plan to rent out)? n Are you taking your mortgage on a repayment basis (capital and interest) over 25 years or less? n Have you saved a deposit of at least 5% of the purchase price?
Mortgages Information Page 2 of 6 Repaying the Equity Loan The example below illustrates how this works on a property worth 200,000. Buyer s 5% deposit 10k Government s 20% loan 40k 150k EXAMPLE HOUSE VALUE 200k 75% mortgage from commercial lender Source: HM Treasury As a result of providing the equity loan, the Government has an entitlement to a share of the future sale proceeds equal to the percentage contribution required to assist your purchase. So if you took an equity loan of 20% to help purchase the property, you would need to repay 20% of the property s value in the future when you came to either sell, or repay your equity loan. The diagrams below illustrate the amount you would repay on your equity loan which can go up or down and is linked to the future value of your property. Property value increases by 10% Property value decreases by 10% 44k Government s 20% loan 36k Government s 20% loan 220k EXAMPLE HOUSE VALUE 180k EXAMPLE HOUSE VALUE
Mortgages Information Page 3 of 6 The Equity Loan provided by the Government is interest free for the first five years of the scheme. After that, if you have not already repaid your loan in full, from year six you will pay gross interest to the Government of 1.75% on the outstanding equity loan amount. This amount of interest will increase each year by the annual increase in the Retail Price Index (RPI) inflation plus 1%. The example below shows how interest on the equity loan is calculated, if the annual increase in the RPI was estimated at 5%. n From year 6, interest at 1.75% would be charged on the amount of the equity loan. n From year 7, if the annual increase in the RPI was 5% the interest payable on the equity loan would increase by 6% (i.e. increase in RPI of 5% + 1%). n Interest on the equity loan would then be charged at (1.75% x 6%) + 1.75 = 1.86% The table below assumes a mortgage of 150,000 on a property value of 200,000 with an equity loan of 40,000. All rates are for illustrative purposes only. Start of year Gross interest percentage Government Equity Loan (interest only) Annual gross interest due Estimated monthly payment Santander Help to Buy Mortgage (repayment capital and interest) Gross interest percentage Estimated monthly payment Mortgage and Equity Loan Total monthly payment 1 0% 0 0 3.79% 774 774 2 0% 0 0 3.79% 774 774 3 0% 0 0 3.79% 774 774 4 0% 0 0 3.79% 774 774 5 0% 0 0 3.79% 774 774 6 1.75% 700 58 4.74% 840 898 7 1.86% 744 62 4.74% 840 902 8 1.97% 788 66 4.74% 840 906 9 2.08% 832 69 4.74% 840 909 10 2.21% 884 74 4.74% 840 914 11 2.34% 937 78 4.74% 840 918 12 2.48% 993 83 4.74% 840 923 13 2.63% 1,053 88 4.74% 840 928 14 2.79% 1,116 93 4.74% 840 933 15 2.96% 1,183 99 4.74% 840 939 16 3.13% 1,254 104 4.74% 840 944 17 3.32% 1,329 111 4.74% 840 951 18 3.52% 1,409 117 4.74% 840 957 19 3.73% 1,493 124 4.74% 840 964 20 3.96% 1,583 132 4.74% 840 972 21 4.19% 1,678 140 4.74% 840 980 22 4.45% 1,778 148 4.74% 840 988 23 4.71% 1,885 157 4.74% 840 997 24 5.00% 1,998 167 4.74% 840 1,007 25 5.29% 2,118 176 4.74% 840 1,016
Mortgages Information Page 4 of 6 How do I access the scheme? n Step 1 Find a potential new home from a developer working within the Help to Buy scheme. Properties can be found from your local Help to Buy agent s website http://www.helptobuy.org.uk/find-your-local-helpto-buy-agent/, or if you are visiting a new housing development, ask the builder if they are participating in the scheme n Step 2 Next speak to a Financial Adviser to obtain a mortgage Decision in Principle before paying any reservation fees. A Decision in Principle will provide you with an approximate idea of the size of mortgage you would qualify for n Step 3 Make your reservation with the builder, complete the Property Information Form and the developer will send it to your local Help to Buy agent. At this point you may need to pay a reservation fee to the builder n Step 4 The Help to Buy agent will assess your equity loan application and, if successful, will issue Authority to Proceed (ATP) which you will need when you apply for your mortgage. This will be emailed to you and you will also receive a copy in the post n Step 5 Once you have received your ATP you will then be able to go back to your Financial Adviser and complete your mortgage application n Step 6 If your mortgage application is successful your Mortgage Adviser will inform you about the next steps and timescales in the process n Step 7 On completion of your property your solicitor will register a second charge on your home to cover the equity loan Please note that the ATP is given on the specific property you are buying. If the property you are buying changes, you would need to be re-issued with a new ATP. Important Considerations Prior to purchasing a house under the Help to Buy Equity Loan scheme, there are some important points to consider: (1) Risk of negative equity Some new build properties include an extra premium on the sale price that can reduce as soon as someone moves into the property. This potential reduction in the value of the property is an important factor you should consider when buying a new home using a mortgage and an equity loan which could represent borrowing of up to 95% of the value of the property (e.g 75% LTV mortgage plus an equity loan for 20%). If house prices fall, you may not have enough money from selling the property to repay the mortgage and the equity loan. This could leave you with a shortfall. If the amount you owe under your mortgage and equity loan is greater than the value of your home, this is called negative equity and could make it difficult to move or remortgage unless you can meet the shortfall from savings or other sources. However, this is a risk of high loan-to-value borrowing (where you borrow a large percentage of the value of the property), not the Help to Buy Equity Loan scheme itself. It is important that you fully discuss this scenario with your Financial Adviser so that you understand what this means before making a decision. (2) Repaying your equity loan The equity loan can be repaid at any time within 25 years (or the terms of the mortgage), or on sale of the property. It is important that you think about, and discuss with your Financial Adviser, about saving to make sure you can repay the loan in the future. You should be clear about how you plan to repay the loan and have a plan in place to enable you to do this. (3) Financial Difficulties You are responsible for paying your mortgage under the Help to Buy Equity Loan scheme in exactly the same way as any of Santander s other mortgage customers and you should talk to us if your circumstances change. If Santander had to repossess the property and sell it, you would be responsible for paying any shortfall between the amount you owe us (including costs) and the amount we received from the sale of the property. You are also responsible for paying the interest due on the equity loan from year 6 onwards until you have fully repaid the equity loan. (4) Access to additional borrowing You would need to gain permission from the Help to Buy Agent first if you are looking to borrow more (increase your mortgage amount at a later date). Consent will not usually be granted but is likely to be considered if you are looking to repay the equity loan. If their permission is granted, you will need to contact Santander to discuss your application. Any additional borrowing will be subject to status and Santander s current lending criteria at the time, but you may find it difficult to be accepted for additional borrowing if your LTV remains high. (5) Remortgaging If you decide that in the future you would like to move your mortgage to another mortgage lender (this is called remortgaging) you should also be aware that you would need prior permission from the Help to Buy Agent. Your new lender must also offer Help to Buy equity loan mortgages and you would need to inform them that your home is a Help to Buy property with a second charge entitling the Government to a share of the future sale proceeds. You should be aware that not all mortgage lenders offer Help to Buy Equity Loans, so you may be restricted in the number of mortgage lenders you can choose. Your Financial Adviser should be able to inform you which lenders are currently participating in the scheme.
Mortgages Information Page 5 of 6 Frequently Asked Questions Can I put more than a 5% deposit down? Yes, but you should discuss this with both the HomeBuy Agent and your Financial Adviser to understand all of your available options so that you can decide which mortgage is best for you. How much can I borrow? The amount you can borrow will depend on your individual circumstances and on Santander s current lending criteria at the time of your application. You will need to check with your Financial Adviser to make sure you can afford the mortgage. Can I do part exchange as part of the scheme? No. Part Exchange is not available as part of the Help to Buy scheme. Further Information Speak to your local Help to Buy agent and participating developers to find out more about the Help to Buy Equity Loan scheme. Details of your local Help to Buy agent can be found on the Help to Buy website below together with further information about the scheme. n http://www.helptobuy.org.uk/help_to_buy.aspx You should also speak to a Financial Adviser where you can discuss your financial circumstances and decide whether a mortgage under the scheme is right for you. When will I have to pay back my equity loan? The equity loan can be repaid at any time within 25 years (or the terms of the mortgage), or on sale of the property. It is important that you think about, and discuss with your Financial Adviser, about saving to make sure you can repay the loan in the future. You should be clear about how you plan to repay the loan and have a plan in place to enable you to do this. Can I buy a property using Help to Buy and rent it out? No. Help to Buy will only be available on properties which are occupied by the individual or individuals taking out the mortgage. If you already own another property that you do not wish to sell, then you would not be eligible for the scheme. Who do I speak to if I have any questions about my Equity Loan? The Equity Loan is a separate arrangement between yourself and the HCA. You will receive an annual statement from them, and they will be able to answer any questions relating to the Equity Loan. Who do I speak to if I have any questions about my mortgage? You should contact Santander if you have any questions about your mortgage.
Mortgages Information Page 6 of 6 Glossary n Financial Adviser is an independent individual or company who would provide impartial advice on your mortgage options. n Home and Communities Agency (HCA) is the national housing and regeneration agency; and the regulator of social housing providers in England. It is an executive non-departmental public body of the Department for Communities and Local Government. n Retail Price Index (RPI) is the official measure of the general level of inflation as reflected in the change in the cost of a basket of retail goods and services such as energy, food, petrol, housing, household goods, travelling fare, etc. n Inflation a general increase in the price of goods and services over time. n Second charge is a secured loan against your property that comes second in line to a first charge (the first charge is your mortgage). When the property is sold, the first charge (your mortgage), is cleared in full before the second charge (the equity loan), receives any money from the sale. You would receive any money that was left after both of the loans had been repaid. n Negative Equity a situation in which the value of a house has become less than the amount of money the owner borrowed in order to buy it. This means you would not be able to repay the outstanding mortgage/loan on your property with the proceeds alone from selling it. You would therefore be left with a shortfall to cover. n Loan to Value (LTV) is the ratio between the size of your mortgage and our valuation of your property, expressed as a percentage. For instance, if your home is worth 100,000 and you are borrowing 75,000, your LTV is 75%. n Help to Buy Agents are registered providers appointed by the Government s Homes and Communities Agency. Your local Help to Buy agent is there to guide you through the options available and explain the eligibility and affordability criteria of the Help to Buy scheme. Details of your local Help to Buy agent can be found on the following website http://www.helptobuy.org.uk/help_to_buy.aspx n Authority to Proceed (ATP) is the approval you would receive from the Help to Buy Agent which confirms your equity loan on the property you have applied All applications are subject to status and our current lending criteria. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. MORT 1023 JUL 13 HF Santander UK plc. Registered Office: 2 Triton Square, Regent s Place, London, NW1 3AN, United Kingdom. Registered Number 2294747. Registered in England. www.santander.co.uk. Telephone 0870 607 6000. Calls may be recorded or monitored. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, except in respect of its consumer credit products for which Santander UK plc is licensed and regulated by the Office of Fair Trading. Our Financial Services Register number is 106054. Santander UK plc is also licensed by the Financial Supervision Commission of the Isle of Man for its branch in the Isle of Man. Deposits held with the Isle of Man branch are covered by the Isle of Man Depositors Compensation Scheme as set out in the Isle of Man Depositors Compensation Scheme Regulations 2010. In the Isle of Man, Santander UK plc s principal place of business is at 19/21 Prospect Hill, Douglas, Isle of Man, IM1 1ET. Santander and the flame logo are registered trademarks.