Lyndsey - Underwriter
I recently received a call from a broker asking for clarification about the equity loan part of the government’s Help to Buy scheme. They wanted some advice about calculating the interest and whether it should be included in their mortgage application.
To make sure your customer fully understands the long-term financial implications of Help to Buy, you should always add the equity loan repayment as a commitment when you’re completing their mortgage application.
The monthly commitment is calculated by multiplying the government equity loan by 1.75% (this is the initial rate customers are charged once the interest free period has finished) and then dividing by 12. This will be a future commitment that we will use in our affordability calculation.
It’s important to explain to your customer that although they don’t have to start paying interest during the 5 year interest free period, it will be an upcoming cost that needs to be taken into account at the end of the 5 years, unless of course the equity loan is paid off within the interest free period. Just remember to review the scheme details to ensure your customer is aware of the ongoing costs as the payment is likely to increase over the term of the mortgage.
If you’d like to find out more, call us on 0800 116 4385 or visit the Help to Buy section on our website by clicking here.