How did Help to Buy work?
The government lent first-time buyers up to 20% of the price of a new-build home in England, and up to 40% on new-builds in London. You put down a 5% deposit and took out a mortgage for whatever was left, usually 75% of the property’s value. That loan was the equity loan, so called because it gave the government a slice of the equity in your home.
For the first five years the equity loan cost you nothing in interest. From year six a fee kicks in, starting at 1.75% of the loan’s value, and it climbs each year in line with the consumer price index (the official measure of how fast prices are rising) plus 2%. The loan itself sits there until you sell the home, remortgage, or reach the end of your mortgage term. Only then do you have to pay it back.
What happens after five years?
When the five-year interest-free period ends, the monthly fees begin. They rise every year, so what starts small can add a real chunk to your housing costs a decade down the line. This is why a lot of homeowners look at either repaying the equity loan outright or remortgaging to release the cash to clear it.
One point catches people out. What you owe on the equity loan is worked out as a percentage of your home’s current market value, not the price you paid for it. So if your home is worth more now than when you bought it, the amount you repay will be more than the sum the government originally lent you.
Can you remortgage with Help to Buy?
Yes, you can remortgage a Help to Buy home. The catch is that fewer lenders will deal with a property that still has an equity loan against it. Some treat the equity loan as a second charge (a second claim on your home that ranks behind the main mortgage), and that narrows down who will lend to you.
If you want to remortgage and clear the equity loan in one go, you have to borrow enough to cover both your existing mortgage balance and the government’s share. Your adviser knows which lenders handle this kind of case and can match you to one that fits your income and equity.
Selling a Help to Buy property
When you sell, the equity loan is repaid as a percentage of the sale price. Say the government lent you 20% and your home sells for £300,000. You would owe £60,000, whatever you originally paid for the place. It cuts both ways: you pay back less if the property has lost value, and more if it has gone up.
You will also need a solicitor and a redemption statement from the Help to Buy administrator, which is the official figure confirming exactly what you owe to close the loan. That adds a few steps on top of a normal sale, so it pays to get the ball rolling early.