Paying interest on your Help to Buy: Equity Loan
Information to help you understand the interest you pay on your Help to Buy: Equity Loan.
Applies to England
This guide provides information about Help to Buy: Equity Loan, a government home-ownership scheme. It will help you to understand:
- what interest payments are
- when you start to pay interest on your equity loan
- how we work out the amount of interest you pay on your equity loan
- annual increases to interest payments
This guide is relevant if you have used one of the following schemes:
- Help to Buy: Equity Loan (2013-2021)
- Help to Buy: Equity Loan (2021-2023)
Interest payments
Interest is what we charge for lending you a Help to Buy: Equity Loan to buy your home.
When you bought your home with Help to Buy: Equity Loan, you agreed to pay interest on what you owe. Interest payments start after the first five years.
From the fifth anniversary of your equity loan, you pay interest monthly until you have repaid your equity loan in full.
Interest payments do not go towards repaying your equity loan.
You can repay your equity loan in part or in full at any time, for example when you sell your home or remortgage. Find more information in our guides on how to manage your equity loan.
The longer you keep your equity loan, the more interest you pay. Find out how to repay your equity loan by visiting www.gov.uk/manage-equity-loan or download our repayment guide.
Your interest payments are in addition to your £1 monthly management fee (that you started paying when you took out your equity loan).
When you pay interest
You start to pay interest on the fifth anniversary of your equity loan (from the beginning of year 6), and interest payments are due every month.
How much interest you pay
The annual interest you pay is worked out by multiplying:
- the Help to Buy: Equity Loan amount (purchase price x equity loan percentage)
- by the interest rate (starting at 1.75% of the equity loan amount you borrowed)
Your annual interest is divided by 12 months to give a monthly payment amount. The interest rate goes up each year, in April.
We work out monthly interest payments using this sum: (equity loan amount in £ x interest rate %) ÷ 12 months
Example of interest calculation
| Property purchase price | Equity loan percentage | Equity loan amount | Annual interest payment in year 6 (1.75% of the equity loan) | Monthly interest payment in year 6 |
|---|---|---|---|---|
| Bought for £200,000 | Borrowed 20% | £40,000 | £700 | £58.33 |
The sum for this example is: (£40,000 x 0.0175) ÷ 12 = £58.33
Paying your interest
You can set up a Direct Debit to pay your interest each month.
If you have a Direct Debit set up to pay your monthly management fee, we’ll use this when you start to pay interest on the fifth anniversary of your equity loan. Contact us if you need to change details on your Direct Debit.
Interest rates changes
In year 6, your interest rate is 1.75%.
After this, every year you have your equity loan, your interest rate goes up by the increase in inflation (if any).
The rate of inflation is the change in prices for goods and services over time. Inflation rates change and this will affect the amount of interest you pay on the equity loan.
Once you start paying interest, we’ll send you information about your interest rate every year in February. Changes to interest rates are then applied to your account annually in April.
The inflation rate used depends on which equity loan you have:
- Help to Buy: Equity Loan (2013-2021) – Retail Price Index (RPI) plus 1%
- Help to Buy: Equity Loan (2021-2023) – Consumer Price Index (CPI) plus 2%
| We work out the interest rate increase for Help to Buy: Equity Loan (2013-2021) using this sum: | We work out the interest rate increase for Help to Buy: Equity Loan (2021-2023) using this sum: |
|---|---|
| (year 6 rate x (RPI + 1%)) + year 6 rate = year 7 rate | (year 6 rate x (CPI + 2%)) + year 6 rate = year 7 rate |
| then | then |
| (year 7 rate x (RPI + 1%)) + year 7 rate = year 8 rate | (year 7 rate x (CPI + 2%)) + year 7 rate = year 8 rate |
| And so on. | And so on. |
How we work out your interest rate
Example 1: RPI set at 10%
The table below shows how we work out interest. In this example ‘RPI plus 1%’ is set at an RPI inflation rate that equals 10%. So, your interest rate is multiplied by 11%, and that amount is added on.
| In year (April) | Interest rate increase calculation | Interest rate |
|---|---|---|
| 1 - 5 | No interest payments | 0% |
| 6 | Not applicable | 1.7500% |
| 7 | 1.7500% (year 6 rate) + 0.1925% (which is 1.7500% x 11%) | 1.9425% |
| 8 | 1.9425% (year 7 rate) + 0.2136% (which is 1.9425% x 11%) | 2.1561% |
| 9 | 2.1561% (year 8 rate) + 0.2371% (which is 2.1561% x 11%) | 2.3932% |
| 10 | 2.3932% (year 9 rate) + 0.2632% (which is 2.3932% x 11%) | 2.6564% |
Example 2: RPI set at 5%
The table below shows how we work out interest. In this example ‘RPI plus 1%’ is set at an RPI inflation rate that equals 5%. So, your interest rate is multiplied by 6%, and that amount is added on.
| In year (April) | Interest rate increase calculation | Interest rate |
|---|---|---|
| 1 - 5 | No interest payments | 0% |
| 6 | Not applicable | 1.7500% |
| 7 | 1.7500% (year 6 rate) + 0.1050% (which is 1.7500% x 6%) | 1.8550% |
| 8 | 1.8550% (year 7 rate) + 0.1113% (which is 1.8550% x 6%) | 1.9663% |
| 9 | 1.9663% (year 8 rate) + 0.1179% (which is 1.9663% x 6%) | 2.0842% |
| 10 | 2.0842% (year 9 rate) + 0.1250% (which is 2.0842% x 6%) | 2.2092% |
How interest rate increases can change your interest payments
Your interest rate will increase each year from year 6, even when inflation is 0% or less.
The examples below show how your monthly interest payment may go up every year until you fully or partly repay your equity loan.
Example 1: RPI set at 10%
In this example RPI is set at 10% therefore interest rates increase by 11% each year, and the equity loan value is £62,000.
| In year (April) | Interest rate increase (RPI at 10%, plus 1%) | Interest rate | Annual interest | Monthly interest |
|---|---|---|---|---|
| 1 - 5 | No interest payments | 0.0000% | £0.00 | £0.00 |
| 6 | Not applicable | 1.7500% | £1,085.00 | £90.42 |
| 7 | 11% | 1.9425% | £1,204.35 | £100.36 |
| 8 | 11% | 2.1561% | £1,336.78 | £111.40 |
| 9 | 11% | 2.3932% | £1,483.78 | £123.65 |
| 10 | 11% | 2.6564% | £1,646.96 | £137.25 |
Example 2: RPI set at 5%
In this example RPI is set at 5% therefore interest rates increase by 6% each year, and the equity loan value is £62,000.
| In year (April) | Interest rate increase (RPI at 5%, plus 1%) | Interest rate | Annual interest | Monthly interest |
|---|---|---|---|---|
| 1 - 5 | No interest payments | 0.0000% | £0.00 | £0.00 |
| 6 | Not applicable | 1.7500% | £1,085.00 | £90.42 |
| 7 | 6% | 1.8550% | £1,150.10 | £95.84 |
| 8 | 6% | 1.9663% | £1,219.10 | £101.59 |
| 9 | 6% | 2.0842% | £1,292.20 | £107.68 |
| 10 | 6% | 2.2092% | £1,369.70 | £114.14 |
Part repayments
Your interest payments will decrease if you make a part repayment towards your equity loan. This is because, following a part repayment, your interest is worked out using the percentage of equity loan left to repay, and the original market value of your home.
You can repay part of your equity loan at any time.
If you’re struggling to pay
If you’re experiencing financial difficulties or have any reasons, which may result in you being unable to make payments, please contact us to discuss your options.
Contact our Customer Service team
Phone:
0300 123 4123
Email:
customerservices@myhelptobuyloan.co.uk
Post:
Help to Buy customer services, PO Box 5262, Lancing, BN99 9HE
When emailing our Customer Service team, please include your account number and a brief summary of your query in your email subject line.
Our Customer Service team is available Monday to Friday, 8am to 8pm and Saturday 9am to 1pm (excluding UK public holidays).