Help to Buy Remortgage
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If you have purchased a home via the Government’s Help to Buy scheme, you may be wondering about your options when you come to the end of a fixed term and want to remortgage.
Under the Help to Buy scheme, which ran from April 2013 to March 2023, eligible borrowers could purchase a new build home with a 5% deposit, an equity loan of up to 20% (40% in London), and a mortgage for the remainder. The equity loan was interest-free for the first five years.
Borrowers usually repay the loan through a remortgage or the sale of the property. The amount owed is determined by the value of the property at the point of repayment – not at the time of purchase some years earlier.
With house prices having risen, those with Help to Buy loans often pay back more than they expected.
What happens after five years with Help to Buy?
The loan is interest-free for the first five years, although you may have to pay a small monthly admin fee during this time.
After five years, interest becomes payable. It is 1.75% initially, and goes up each year. The yearly increase in rate depends on when you took the loan out.
Remember, this is purely interest, so you aren’t paying back any capital.
Can I get a Help to Buy remortgage?
Many lenders do not offer any Help to Buy remortgage deals.
Of those that do, some lenders require you to pay off the equity loan in full. You often do this by borrowing more on your mortgage to cover the cost. Your affordability or personal circumstances might restrict you.
However, some lenders may allow you to remortgage and keep the Help to Buy loan. Lenders will factor in interest payments for affordability purposes. However, you may not be able to borrow more or increase your mortgage term.
Should I pay off the equity loan?
Paying back the Help to Buy loan has several advantages. These include:
- Interest payments – you start paying interest after five years. In the sixth year, interest is 1.75%. After that, the amount of interest charged isn’t fixed; it increases each year based on either the Consumer Price Index (plus 2%) or the Retail Price Index (plus 1%). By repaying the loan in full, you avoid further interest charges.
- Removal of a charge – the Help to Buy equity loan is secured against your property. Once you repay it, the charge is removed, and Help to Buy has no further claim to your home. You then benefit more from any increase in house prices.
- Better choice – once you repay the loan, you should have a much wider choice of deals and lenders to choose from when it comes to refinancing.
- Freedom of choice – the Help to Buy scheme has strict refinancing conditions. For example, while the loan is still in place, you can’t borrow more on your mortgage to consolidate other debts or for minor home improvements. Once you repay the loan, you could also choose to rent the property out, something that isn’t allowed while the loan is in place.
If you repay the loan by remortgaging for a higher amount, you might need a higher loan-to-value product. This probably means higher monthly payments at a higher rate of interest, especially if you secured a long-term fixed rate when rates were at historic lows.
Bear in mind, though, that the loan needs to be repaid in full after 25 years if you haven’t sold the property or otherwise paid it back.
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What happens if I can’t afford to pay back the Help to Buy loan?
If you can’t afford to pay back the Help to Buy loan after five years, you’ll start paying interest. The interest rate increases every year, so it could get expensive.
You don’t have to pay off the loan all at once. You can repay 10% at a time, which might be more manageable. However, you can’t make monthly payments.
If you don’t have a lump sum of cash, you can repay the loan by remortgaging or selling the property. You have 25 years from the day you bought the house to repay the loan, which gives you a lot of time. If you can’t afford to do it straight away, your circumstances might improve in the future.
How does a Help to Buy remortgage work?
A Help to Buy remortgage where you repay the loan differs slightly from an ordinary remortgage.
You may want to speak to a mortgage advisor before carrying out any of these steps. An advisor can tell you if your plan is feasible.
First, you need to pay for a RICS-approved surveyor to value your property. This valuation determines how much you owe on the loan. For example, if the surveyor values the house at £300,000 and you have a loan for 20%, you will owe £60,000.
Next, see if you can get a new mortgage for the amount needed. You’ll also need to pay for a solicitor and cover the admin fee payable to Help to Buy. There’s a form to fill out and send off to Help to Buy to inform them of your intention to repay the loan.
Keep in mind that a mortgage offer is usually valid for up to six months, but the property valuation for Help to Buy is only valid for three months from the date it was done. So, you need to move quickly. If the valuation expires, you might have to pay for a new one.
How can The Mortgage Store Chorley help with a Help to Buy remortgage?
At The Mortgage Store Chorley, we specialise in guiding you through the intricacies of a Help to Buy Remortgage. Whether you’re repaying the loan or looking to keep it, we understand the unique dynamics of these options and will help you navigate the complexities of remortgaging with Help to Buy.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
