Selling a home with Help to Buy Equity Loan
The Help to Buy equity loan has helped thousands of buyers to get onto the property ladder, but what happens when you are selling a home with a Help to Buy Equity loan? Who do you contact? What are the additional costs? And what else do you need to be aware of?
The Help to Buy equity loan can be a great help to buyers for whom homeownership seems an impossible ask. But while the scheme is well publicised not a lot is known about what happens when you come to sell your Help to Buy property. If you are thinking of applying for an equity loan and are wondering how this could affect you moving forward or are already part of the scheme and thinking of selling your property – read on.
The Help to Buy equity loan in brief
With a Help to Buy equity loan, you can borrow up to 20% of the value of the property interest-free for the first five years, which means that you could buy a home with just a 5% deposit, and a mortgage for the remaining 75%. You must be a first-time buyer and there are price caps depending on where you live. For more details of eligibility and regional price caps see our guide Help to Buy equity loan 2021-2023.
Do I have to pay back my Help to Buy equity loan before I sell?
The Help to Buy Equity loan must be repaid after 25 years or at the same time as you sell your home.
When you buy a home with Help to Buy, a second charge is placed on your property title at the Land Registry. This means you can’t sell your home unless the HCA is repaid their loan percentage. Unless you have repaid your loan in full through staircasing (the process whereby homeowners repay a loan in part via multiple payments), you will repay the Agency’s equity loan simultaneously when you sell.
How much of my Help to Buy equity loan will I have to pay back?
If you initially purchased your home with a 75% mortgage and a 5% cash deposit and have made no other staircasing repayments, you will repay the HCA 20% of the value at the time you sell.
Who do I contact when I want to repay my Help to Buy equity loan?
For any decisions or rulings relating to the equity loan scheme, you will need to contact Target – the firm the HCA uses for all administrative duties regarding selling your home with a Help to Buy Equity loan. You can do so by emailing Target.HCA@targetgroup.com or by calling 0345 848 0235.
What happens when selling my home with a Help to Buy equity loan?
You can sell your home on the open market just as you would with a home not bought with a Help to Buy equity loan. Once you have received an offer you’ll need to have the property valued by a chartered surveyor. You must then let Target know the amount of the offer you have received and that you have instructed a surveyor. Target will then contact you once it has received the valuation report to let you know what happens next.
Moving your mortgage
When you bought your Help to buy home your mortgage deal will likely have been one specifically available for Help to Buy properties. When selling your Help to Buy home and buying a non-Help to Buy home, you may find that you have to change your mortgage. While there are some Help to Buy deals that are portable and can therefore be moved to your new property, a number are not and so would require a new deal to be taken rather than the original rate ported across. However, it’s worth noting some lenders will refund any early repayment charge (ERC) if you take another deal with them, subject to certain requirements.
What are the other costs involved of selling my help to buy equity loan home?
If you choose to sell your property without having first repaid your equity loan, then the full amount (minus any redemption payments you may have previously made) will be deducted at the time of sale. This is calculated as a percentage of whichever total sum is highest- either the agreed sale price or the current market value.
You will be responsible both for obtaining this valuation and making sure that the surveyor you use is a RICS qualified member. If you don’t do this you risk the valuation being rejected by your Help to Buy agent and another, acceptable, valuation being commissioned (again, at your own expense!).
Once you have received your valuation, the results are sent, together with any other relevant paperwork and the offer that you wish to accept, to your Help to Buy agent, who will then establish the total repayment amount. An administrative fee of £200 is also charged at this time. It is important to bear in mind that any valuation figure that you receive is only valid for three months, so it’s important to move quickly. If the loan has not been redeemed within that period, then you will either have to pay for another valuation or apply for an extension. Any changes in the valuation will be then reflected in the redemption amount.
Add to this the other costs of selling a home – which you can get a full picture of in our guide on What is the cost of selling your home
What happens if my home bought with Help to Buy equity loan has fallen in value?
Because new build properties are only considered as ‘new’ for a very short period, their value can diminish over time.
However, with a Help to Buy equity loan, you are only committed to repaying whatever percentage of the loan you receive at market value when you sell your home. In other words, if the market value of your property falls below the original purchase price, then you will not be held liable for any shortfall in the loan providing that your market valuation is approved, that you have fulfilled all of your lender’s terms and that you are not in arrears over interest or management fee payments.
In some cases the Help to Buy Agency may ask you to provide evidence to show that you have not knowingly under-sold the property. Once you have received permission to sell your home at a lower market value, the final repayment figure is calculated by deducting your outstanding mortgage balance from the market value or sales price (according to which is highest).
I bought a flat in a block with dangerous cladding, what can I do?
If you live in a residential building that has cladding, or a combustible timber balcony, and is over 18m or six storeys, then it falls into the category of property that needs an EWS1. New guidance has led to EWS1 forms not being required for 92% of mortgage valuations on flats, according to the Building Societies Association. For more advice, see our guide to EWS1 forms.
If your building’s EWS1 form shows remedial work is required, then it could affect the valuation of your home If you have found an interested buyer, they may not be able to secure a mortgage until the cladding has been removed.
You will need to have a specialist valuation of your property for the by a member of the Royal Institution of Chartered Surveyors. The government’s agency – Target – must approve the valuation before it can go ahead. Homes England is currently advising leaseholders living in such blocks that they can only sell at the price as if the cladding issues does not exist and will therefore turn down any sale that is considered to be below market value.
In addition, those leaseholders who can afford to pay back the loan themselves, have been banned from doing so as Homes England is not willing to sell at the current reduced value.
If you have been affected by this, please leave a comment below.
- Help to Buy Equity Loan 2021-2023
- Staircasing & remortgaging Help to Buy
- The step by step guide to selling your home
- When is the best time to sell my home?
- Why isn’t my house selling?
- Find my best local estate agent now
- How much should I pay the estate agent?
- Compare online estate agents
- Estate Agents’ contracts – what to watch for