The government's new equity loan scheme could help many more people on to the housing ladder. After more than 30 years in new build property, here is what I think buyers, developers and agents need to know.

On 26 September the government announced Your First Home, a new equity loan scheme for first-time buyers in England. I have worked in new build property for more than 30 years, most of it acting for developers, and I now act for buyers too. I have seen this idea arrive under several names, from key worker loans to Help to Buy. I think this latest version is good news. Here is why, and what to watch for.

What we know so far

The scheme is for first-time buyers buying a new-build home from a developer who is signed up to the scheme. You will need a deposit of 2.5%. The government will lend you 20% of the price through an equity loan, with an initial interest-free period. Your mortgage covers the rest.

On a £230,000 home, which Rightmove puts as the national average for a starter home, that means a deposit of £5,750, an equity loan of £46,000 and a mortgage of £178,250.

There will be a household income cap and local price caps, so the help goes to the people who need it and to modest homes. We will not know the levels until the Budget on 28 October. Nor do we know yet how long the interest-free period lasts, or the rate thereafter.

How the equity loan works

This is the part buyers most often misunderstand. The equity loan is not a fixed sum you pay back. It is a share of your home’s value. If the government lends you 20% and your home goes up in value, the amount you repay goes up too. That is no reason to avoid the scheme, but understand it before you sign.
The other common confusion is the word deposit. Buyers often use it to mean everything they are putting in, which is not the same as the deposit paid when contracts are exchanged.

Does it just help developers?

It is a fair question. The government’s own review of Help to Buy found it helped people into home ownership in some areas but did not remove affordability barriers where prices were already high. Two things should help this time. The local price caps should keep the scheme to modest homes. And since 2008, lenders have valued new-build homes against nearby homes, not just the last few sales on the same site, which limits how far prices can be pushed.

Developers will pay a contribution to join, and I will be watching where it is set. When developers had to help fund loans under FirstBuy, it suited the big housebuilders. If the fee is too high, smaller builders stay out and buyers get less choice.

Where these purchases go wrong

In my experience, equity loan purchases rarely fall through on price. They fall through on detail: a mortgage offer that does not match the paperwork by a pound, a form left unsigned, an equity deed witnessed by a relative, or a deadline nobody tracked. When that happens, a buyer can lose the home they reserved. None of it is hard to get right if you start early.

My advice if you are thinking about it

Speak to a mortgage broker now, so you know where you stand when the caps are published. Do not assume you will qualify until then.

Choose your conveyancer before you reserve, not after, and choose one who handles new build every day. Reservation deadlines are short.

Ask your conveyancer to explain the equity loan in plain English, including what you would repay if you sold or remortgaged. If they cannot do this, find one who can.

Working together

Developers, agents, brokers and lawyers each play a part in a new build purchase. The ones that complete smoothly are those where everyone works toward the same outcome: you getting the keys on time.

Having acted for developers for so long, I know what they need and where the pressure points are. That lets me protect buyers without holding up the sale. Whether you are buying, building or selling under Your First Home, I would be glad to talk.

Gareth Fullbrook is a Partner in Residential Conveyancing at Dutton Gregory. Read more about Gareth.