Second charge on your home

The first thing to note is when you take out a secured loan, it is done so against the value of your property. Hence the term secured.

First charge;

A mortgage is a secured loan but is termed a first-charge in the instance that you default and any debt has to be recovered, the first charge is paid off  first.

This is always the case whenever you purchase somewhere with a mortgage.

Second charge;

The Equity Loan is deemed to be the second charge, in the event of default the second charge is paid off after the first charge.

Therefore, in this scenario, the mortgage will always be cleared before the equity loan.

As is the case with your mortgage, your property can’t be sold in the future without the Equity Loan being paid back. Either prior to or at the time of sale.

When purchasing through the Help to Buy Equity Loan scheme you must agree to the charge being secured on your home as a condition of the purchase.

When it comes to paying back the loan at the time of selling, the value will be calculated as 20% (or 40% in London, 15% in Scotland) of the sale price.

If you choose to pay back the loan before you come to sell, it will be as a percentage of the future value. If you sell your house or have lived there for over 25 years you will have to repay the equity loan amount back in full if you haven’t already done so.

The Help to Buy equity loan is interest free for the first five years, after which you will be charged a rate of 1.75%.

This rate steadily increases year on year in line with any rise in the Retail Price Index plus 1%. These repayments will be on top of your mortgage repayments.

This guide was produced in collaboration with L&C Mortgages, the UK’s largest fee free mortgage broker and adviser.