Help to Buy Remortgage!
Written by Damon Pike – Principle Mortgage and Protection Advisor
Last updated: 25th January 2023
Help to Buy equity loans have helped many homeowners onto or up the property ladder. But the exit strategy is not always given enough thought at the beginning of the process (sound familiar?). Or, if it has been discussed, there are so many options that you may have forgotten or your circumstances may have changed.
When do I pay interest on my Help to Buy Equity Loan?
The government’s Help to Buy equity loan scheme is interest free for the first 5 years. When you reach the end of your interest free period you will need to start paying interest on your equity loan, this starts at 1.75% of the original loan per year (paid monthly) but increases each year. Most importantly, remember the monthly payments are only interest and do not reduce the amount you owe on the loan.
How does house value affect my Help to Buy equity loan?
As it is an equity loan, the amount borrowed initially isn’t necessarily the amount that you repay, even if you repay during the interest free period. You will repay the percentage of the property’s value at the time you repay, based on an independent valuation. If house prices fall you could repay less than you borrowed, but if house prices increase you could end up paying back far more.
I am coming to the end of my fixed rate; can I remortgage and keep the equity loan in place?
Yes you can! You won’t need to stay on the standard variable rate (SVR) which is typically higher than other rates available, until you’re ready to pay off your loan. Mortgages with Help to Buy equity loans are typically taken out on a 2 or 3 year fixed rate, but you may want to wait until the end of the interest free period to repay the loan. Or you may already be paying interest on your loan but are not yet ready to redeem.
There may be deals available with your current lender, this is known as a product transfer. Many other lenders require you to clear the equity loan first, but this isn’t always the case. There are lenders that will allow you to move to them and keep the equity loan in place. However, to change lender, you will also need to inform your Help to Buy agent and pay an administration fee.
It’s always worth weighing up the pro’s and con’s of each scenario. Ask your mortgage advisor for help.
How can I clear the help to buy equity loan?
There are a variety of methods available depending on your situation, and you don’t need to pay it all off in one go (see staircasing). When you move to a new house, your help to buy agent will be paid the amount you owe (for example, 20% of the value based on an independent valuation). If you are not moving you can repay the loan with personal savings, a remortgage or a mixture of both.
Find out how much you can borrow and how much it will cost you with our Mortgage Calculators
Can I remortgage to pay off help to buy?
Whether you can (or should) pay off the help to buy with a remortgage will depend largely on the amount of equity in the property and your affordability. When you take out a help to buy equity loan you are only required to put in a 5% deposit; therefore, for you to have enough equity in the property to repay the loan, you would need either to have paid a chunk of capital owed on the mortgage, or for the value of your property to have increased. However, remember the higher the value of your property, the more you will need to repay for your equity loan.
If you bought a house for £200,000, your Help to Buy equity loan is £40,000, your deposit is £10,000, therefore, your mortgage is £150,000.
After 5 years say your house value has increased to £240,000, you would owe Help to Buy £48,000, you may have paid around £10,000 capital off your mortgage, leaving a remaining mortgage of £140,000. This would leave your equity in the property at £52,000. If you repay your Help to Buy equity loan with a remortgage, your new mortgage would be for £188,000 which is 78% loan to value (LTV).
However, you may also have savings you can use to reduce the new mortgage amount, in this example £8,000 savings would take the LTV to below 75% which may open you up to more competitive products.
Finally, as you are increasing your mortgage amount the lender will want to do an affordability assessment to ensure your new payments are sustainable based on your income and expenditure.
You will need to work out what is best for your situation, as always, ask a trusted mortgage advisor to help.
Can I pay off part of the loan? (known as staircasing)
Yes you can, but only in increments of 10% of the property value (based on an independent valuation at the time of partial payment). For anywhere outside of London this is half of the equity loan at a time. You will need to pay for the help to buy admin charge of £200, solicitor cost’s and an independent valuation report each time you do this. The benefits of higher equity stake in the property and potentially better affordability for a mortgage may outweigh these cost’s. Compare the pro’s and cons for your own situation and speak to a mortgage advisor.
Can I remortgage while still in a fixed term?
If you are still within your fixed term period, you may still be able to remortgage with, or without paying off the Help to Buy equity loan. But there will likely be an early repayment charge (ERC) to your current lender for doing so. A Mortgage advisor can help you decide if this is right for you.
What are the changes to the Help to Buy Equity Loan
The most recent Help to Buy Equity loan 2021:2023 started on 1st April 2021, this replaced the previous scheme. If you started on the scheme before December 16th 2020 you will stay on the old rules until you redeem. The 2021:2023 scheme was also for new build properties with registered developers but was only available to first time buyers. There were regional price caps which equated to 1.5 times the regions average house price. This scheme ends on 31st March 2023 and closed for new registrations from 31st October 2022. No scheme has yet been announced to replace it.
We do not charge broker fees, but there are many other great reasons to use a mortgage advisor. See our top 10 reasons Here.
What is the Help to Buy Remortgage process?
Your solicitor will need the mortgage offer and redemption letter from your help to buy administrator (E.g. Target) to complete the process. The independent valuation used for the equity loan redemption is only valid for 3 months, so speak to your mortgage advisor about the best time to get this done – any delays with obtaining a mortgage offer may mean another valuation will need to be carried out. Start by speaking to a mortgage advisor who can look at your situation and advise you accordingly.
What about my Life Insurance?
As with any major change to your financial situation it is a good idea to review your life insurance when redeeming help to buy. It is quite common to have two separate policies when you have a Help to Buy Equity Loan, a decreasing term to cover the mortgage and a level or increasing term to cover the help to buy loan. When selling a property, consolidating loans or repaying help to buy, your insurance requirements will change, but before cancelling any policies it is important to speak to an advisor to make sure that it is right for your situation and that you have an appropriate policy in place. Lupo Mortgage Services can advise on help to buy remortgages and life insurance without charging broker fees. Speak to us today to see how we can help.
If you need any more information, or you want to discuss your situation, contact us using the form below and we will get straight back to you.
Principle Mortgage and Protection Advisor
Principle Mortgage and Protection Advisor
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