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Using An Equity Loan To Buy Your Home

Using An Equity Loan To Buy Your Home

By Miranda Harding
Published 31 August 2022

If you're struggling to buy the home you love, try a private equity loan. Read our guide to how private equity loans work.

In this guide

  • What's an equity loan?
  • Key principles of an equity loan
  • Eligibility criteria for equity loans
  • How repayment works

What's an equity loan?

An equity loan works by topping up a buyer’s deposit with a second charge mortgage secured against the home. An equity loan acts in a very similar way to the Government’s Help to Buy scheme. The equity loan provider provides additional capital to the buyer, so they can increase their down payment on the property, and in return they take a stake in the buyer’s property. This means the lender will share in any future profit or loss made on the home. 

Private equity loans are a great option for those struggling with either affordability or raising a deposit. Our team works directly with several different providers so we can find the right solution for you.

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Kirsty White

Mortgage lead

Key principles of an equity loan

Each lender has their own eligibility criteria and rules on how the buyer pays the loan back, but some key principles apply.

  • The total loan size available varies from £7,750 - £150,000
  • There are interest only options which reduce monthly payments, but give the lender a larger “stake” in your home
  • Where an interest rate applies, rates being at 6.99%
  • Some providers don’t charge early repayment charges

What are the pros and cons of a private equity loan?

Pros

Get on the ladder without family support

Boost your budget by up to £100,000

Have flexible repayment options, with the ability to pay back the equity loan in one chunk or in monthly instalments

Cons

In return for providing additional capital to the buyer, the lender takes a stake in the buyer's home. This means the lender will share in any future profit or loss made on the home

Interest rates start from 6.99%

The buyer must have a 5% deposit and a household income of at least £35,000

Eligibility criteria for equity loans

The buyer must:

  • Have a minimum 5% deposit
  • Be aged 24 or older
  • Have a regular income, and a household income of at least £35,000
  • Have a good credit score

How repayment works

Each lender has their own eligibility criteria and rules on how the loan is payed back, so our advisors will help you decide on what's the best option for you, but key principles apply. There are interest only options which reduce monthly payments, but give the lender a larger "stake" in your home. When an interest rate does apply, rates start from 6.99%.

Jamie used a private equity loan to buy his first home in St Albans

Living out of one room with a toddler, Jamie used a private equity loan so he could leave the family home, and buy his first place.

Read Jamie's story

Make a plan and we'll give you a personalised recommendation.

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