When do equity loan fees start?
The Help to Buy equity loan is interest-free for the first five years after completion. In year six, a fee of 1.75% of the equity loan value kicks in. This fee then rises each year by the consumer price index plus 2%.
For a £40,000 equity loan, the year six fee would be £700 per year or about £58 per month. This increases annually, so by year ten or fifteen the monthly cost can become significant. Planning ahead gives you time to explore your options.
How to repay the equity loan
You can repay the equity loan in full at any time by paying the government’s percentage share of the current market value. You will need to get an independent valuation, which the Help to Buy administrator will use to calculate the repayment amount.
Partial repayments are also possible, in chunks of at least 10% of the property’s current value. This reduces the government’s share and lowers the fees you pay. Each partial repayment requires a new valuation and comes with an administration fee.
Remortgaging to repay the loan
Many homeowners choose to remortgage to raise the funds needed to repay the equity loan. This involves borrowing more on your mortgage to cover the government’s share. You will need enough equity in the property and sufficient income to afford the higher mortgage payments.
A broker can help you find a lender willing to lend the additional amount and ensure the remortgage completes before your equity loan fees increase further. Timing the remortgage to coincide with the end of your current fixed rate can save you early repayment charges.