Your First Home interest: what the equity loan costs later

How does Your First Home interest work?

Your First Home interest starts at zero: the government has promised “an initial interest free period” on the 20% equity loan, but it has not said how long that period lasts or what you pay when it ends (GOV.UK). Until the Budget on 28 October 2026 fills in those blanks, the only guide we have is Help to Buy, the last government equity loan scheme. Help to Buy was interest-free for five years, then charged 1.75% of the sum borrowed in year six, rising every year after that (GOV.UK).

On a £46,000 loan, the 20% loan on the £230,000 example home used in reports of the announcement, those rules would mean about £67 a month in year six. Everything on this page about years six onwards is an assumption based on Help to Buy, and we say so each time.

What has the government actually said?

Three things, and nothing more, as of 26 September 2026. The loan will have “an initial interest free period”. That free period is what lets the government claim buyers “could save hundreds of pounds per month compared to a 95% mortgage”. And the detail, including “costs and implementation timelines”, will be announced by the Chancellor at the Budget (GOV.UK).

What did Help to Buy charge?

Help to Buy charged no interest for five years, then 1.75% a year of the amount borrowed, plus a £1 monthly management fee throughout. In GOV.UK’s words: “You do not have to pay interest for the first 5 years. In the sixth year, you’ll be charged interest at a rate of 1.75%” (GOV.UK).

From there the rate went up once a year. For loans taken out between 2021 and 2023, the homebuyers’ guide says “your interest will go up each year in April by the Consumer Price Index (CPI), plus 2%” (GOV.UK). CPI is the main measure of inflation in the UK, the one the Bank of England is asked to keep at 2% (Bank of England). Older Help to Buy loans, from 2013 to 2021, rose by the Retail Price Index (RPI) plus 1% instead (GOV.UK).

Two details matter more than the headline rate:

• The interest was worked out on the amount you originally borrowed, “purchase price x equity loan percentage”, not on what your home was worth later (GOV.UK). So the interest bill did not grow with house prices. The repayment did, which is covered on the repayment page.
• Interest was paid monthly by Direct Debit, on top of your mortgage, “until you have repaid your equity loan in full” (GOV.UK).

The £1 a month management fee started on day one and ran until the loan was cleared: £60 over the five free years, and £300 over a full 25-year term (GOV.UK). Your First Home has not mentioned a fee either way.

Worked example: interest on a £46,000 loan

Assume the rules for the final Help to Buy loans (2021 to 2023) are copied exactly, and that CPI runs at the Bank of England’s 2% target. The rate rises by “CPI plus 2%” of itself each April, so a 4% rise takes 1.75% to 1.82%, not to 5.75%. This is the single most misunderstood point about equity loan interest.

Add it up and a buyer who kept the loan for the full 25 years would pay about £24,000 in interest, plus £300 in fees, and still owe the loan itself. If CPI averaged 3% rather than 2% (it was 3.1% when we checked the Bank of England’s site on 27 September 2026), year seven would still be about £70, but year ten would be about £82 rather than £78, and the 25-year total about £26,600 rather than £24,000. Interest is the smaller cost. The bigger one is that the loan is 20% of your home’s value, whatever that turns out to be.

These figures come from our own arithmetic on the GOV.UK rules, and the equity loan calculator lets you change the loan size, the inflation rate and the number of years. The methodology page lists every formula.

Why does the interest not reduce the loan?

Because an equity loan is not a normal loan. With a mortgage, part of every monthly payment pays back what you borrowed, so the debt shrinks. With an equity loan, the government has lent you 20% of the price and is expected to take 20% of the value back, so the interest is simply a charge for keeping that loan; it does not reduce it. GOV.UK puts it bluntly: “Interest payments do not go towards repaying your equity loan” (GOV.UK).

So a buyer who paid £805 in year six on our £46,000 example did not owe £45,195 at the end of the year. They still owed 20% of the home’s value. If the home was then worth £253,000, that was £50,600. The interest and the repayment are two separate bills, and you can only stop the first by paying the second.

This is why, under Help to Buy, many owners planned to repay the loan before the fifth anniversary, either from savings or by remortgaging to borrow more. Repaying needed a surveyor’s valuation and a £200 administration fee (GOV.UK). The repayment page explains the options, with worked examples.

What should you watch for at the Budget?

The Budget on 28 October 2026 should answer six questions about Your First Home interest. We will update this page the same day.

1. How long the interest-free period is. Five years would copy Help to Buy. A shorter period would make the scheme dearer sooner; a longer one is possible because developers are paying towards the scheme’s costs (GOV.UK).
2. The starting rate once interest begins. Help to Buy used 1.75%.
3. How the rate changes each year: CPI plus 2%, a fixed rate, or something new.
4. What the interest is charged on: the sum borrowed, as before, or the current value of the government’s share.
5. Whether there is a monthly management fee.
6. Whether there is a deadline for repaying the loan. Help to Buy loans had to be repaid on sale, when the mortgage was paid off, or after 25 years (GOV.UK).

What this means for you

If the Help to Buy rules are copied, the equity loan is cheap in cash terms for five years and still fairly cheap for a while after that: £67 a month in year six is far less than the roughly £306 a month the smaller mortgage saves on the £230,000 example, as shown on the scheme overview. The catch is not the interest. It is that interest buys you nothing, and the loan itself grows with your home’s value.

What to do next:

• Run your own loan through the equity loan calculator and look at the “after the interest-free period” figure.
• Read how to repay the equity loan so you know your options before year six arrives.
• Weigh the whole picture on the pros and cons page.
• Check back after 28 October 2026, when the real rules replace the assumptions on this page.