How did Help to Buy work?
Under the Help to Buy equity loan scheme, the government lent first-time buyers up to 20% of the purchase price of a new-build home in England, or up to 40% in London. You needed a 5% deposit and a mortgage for the remaining balance, typically 75% of the property’s value.
The equity loan was interest-free for the first five years. After that, you begin paying a fee starting at 1.75% of the loan’s value in year six, which rises annually by the consumer price index plus 2%. The loan itself does not need to be repaid until you sell the home, remortgage, or reach the end of your mortgage term.
What happens after five years?
Once the interest-free period ends, monthly fees on the equity loan begin. These fees increase each year and can add a significant amount to your housing costs over time. Many homeowners find that repaying the equity loan or remortgaging to release funds to pay it off makes financial sense.
The amount you owe on the equity loan is based on a percentage of your home’s current market value, not the original purchase price. If your home has increased in value, the equity loan repayment amount will be higher than the original sum you borrowed.
Can you remortgage with Help to Buy?
Yes, you can remortgage your Help to Buy home, though not all lenders offer products for properties with an outstanding equity loan. Some lenders treat the equity loan as a second charge, which can limit your options.
If you want to remortgage and repay the equity loan at the same time, you will need to borrow enough to cover both the outstanding mortgage balance and the equity loan. Your adviser can help you find lenders who specialise in this type of remortgage.
Selling a Help to Buy property
When you sell, you must repay the equity loan as a percentage of the sale price. If the government lent you 20% and your home sells for £300,000, you owe £60,000 regardless of the original purchase price. This means you benefit if the property has fallen in value but owe more if it has risen.
You will need to instruct a solicitor and obtain a redemption statement from the Help to Buy administrator. The process adds a few extra steps compared to a standard sale, so it is worth starting early.