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Fail to remortgage your Help to Buy and you could end up paying thousands of pounds extra in interest charges. But, remortgaging with a Help to Buy equity loan can also be tricky. Here’s everything you need know.
The Help to Buy equity loan scheme was designed to make it easier for people to get on the property ladder as it meant you needed to borrow less through a mortgage. But when the government starts charging interest – after five years – it can be a good time to reassess your options.
You can carry on as you are, but your monthly bills will start to climb thanks to the new interest you have to pay. Plus, if your mortgage deal ends at the same time, you’ll usually roll onto your lender’s standard variable rate unless you remortgage onto another deal. That’s why this could be the time to remortgage your Help to Buy. That way you can either pay off the loan completely or move the loan onto your mortgage.
If you are thinking about remortgaging we’d recommend getting fee-free advice from a mortgage broker. They can help with a Help to Buy mortgage comparison to see what the right option is for you.
Get fee-free remortgage advice from the award-winning expert advisers at Mortgage Advice Bureau.
Your home may be repossessed if you do not keep up repayments on your mortgage. Please note some branches of Mortgage Advice Bureau may charge a fee for mortgage advice if you go direct. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed. So make sure you use this site, this form or phone number for fee-free advice.
For the first five years of a Help to Buy Equity Loan, you only pay a management fee of just £1 a month. But when you reach year six, the government starts charging you interest on your equity loan.
With the original Help to Buy equity loan scheme (2013-2021), the interest rate starts at 1.75% in year six. After that it rises in line with the Retail Price Index (RPI) measure of inflation plus 1% each year.
While with the Help to Buy equity loan scheme (2021-2023), in the sixth year, you’ll be charged interest at a rate of 1.75%. The interest rate will then increase every year in April, by adding the Consumer Price Index (CPI) plus 2%.
Find more detailed information on how much you’ll pay in interest rates in the Government’s Homebuyers’ guide to the Help to Buy: Equity Loan (2013 to 2021)and Homebuyers’ guide to the Help to Buy: Equity Loan (2021 to 2023).
When you signed up to the Help to Buy equity loan scheme you will have taken out a mortgage for a fixed term. Once this initial term ends, you’ll roll onto your lender’s default rate – the standard variable rate. Each lender sets its own standard variable rate and they are often significantly higher than the initial deal you were on. If you go onto your lender’s SVR your repayments could increase significantly, but the lender can also decide to change its standard variable rate if it wants to.
Many lenders require borrowers to pay off their equity loan as part of the remortgage process. Here are three ways you can do this:
If your home has increased in value and you’ve been making repayments on your mortgage, you may have built up enough equity to borrow more when you remortgage and use the extra money to repay your Help to Buy equity loan.
Bear in mind that the amount you owe on your Help to Buy equity loan is based on a percentage of your home’s current market value, rather than the amount you originally borrowed. So if your home has increased in value, the amount you need to repay will also have increased.
Whether you can borrow enough to clear the equity loan will depend on how much your property is worth, how much you still owe on your mortgage, your affordability and the loan-to-value (LTV) a lender is prepared to offer.
Depending on your circumstances, you may be able to remortgage to a higher loan-to-value (LTV) and use the extra borrowing to repay your Help to Buy equity loan.
This would mean taking on a larger mortgage, so your monthly repayments could increase. However, once the Help to Buy loan is repaid, you would no longer owe the government a percentage of your home’s value.
Whether this is possible will depend on your affordability and the maximum LTV a lender is prepared to offer. A mortgage broker can explain which lenders may consider your circumstances.
Your third option is to pay off your equity loan with savings.
However, whichever route you choose, it can be a complicated process with lenders having strict rules in place when it comes to Help to Buy so it can be a good idea to get expert advice.
Get fee-free mortgage advice from the award-winning expert advisers at Mortgage Advice Bureau.
Get fee-free remortgage advice from the award-winning expert advisers at Mortgage Advice Bureau.
If paying off the whole equity loan isn’t possible, there are other options:
You may choose to pay off your equity loan in chunks. Known as staircasing, you partially pay off the loan. However, the minimum you can repay using staircasing is 10% of the total value of your home. So, for anyone with a 20% equity loan you’ll have to pay back at least half of it with staircasing. You will also pay admin and valuation fees every time you pay off part of your loan.
Some lenders will let you remortgage your Help to Buy with the equity loan remaining. Although your choices will typically be more limited. It’s advisable to speak to a mortgage broker who will explain the right options for you.
If you want to pay off your Help to Buy equity loan this is how you do it:
You don’t have to pay off your Help to Buy loan when interest starts being levied. Under the rules you can keep the loan for 25 years, or until your Help to Buy property is sold.
Your home may be repossessed if you do not keep up repayments on your mortgage. Please note some branches of Mortgage Advice Bureau may charge a fee for mortgage advice if you go direct. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed. So make sure you use this site, this form or phone number for fee-free advice.
When you remortgage a Help to Buy to pay off your equity loan, you won’t have to pay interest on your equity loan after five years and you’ll keep all of any future growth in your home’s value. However, it’s a good idea to get expert mortgage advice on this to make sure you make the right decision for you. Get fee-free expert advice from the Mortgage Advice Bureau.
If you’ve bought a house using the Help to Buy equity loan scheme, then when you sell you must repay the equity loan if you haven’t already done so. There are a few more steps you’ll need to jump through – find out more in our guide on Selling a house with a Help to Buy equity loan. But your property shouldn’t be harder to sell.
There are lots of reasons why someone’s remortgage application could be refused, including if they have a poor credit history, or if the property’s value has decreased and they have little equity in it or are in negative equity.
However, lenders have different criteria, so being declined by one lender does not necessarily mean all lenders will make the same decision. It’s a good idea to speak to a mortgage broker for expert advice on your options. Also, find out more in our guide Mortgage declined? Here’s what to do next.
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