When do equity loan fees start?
You pay no interest on the equity loan for the first five years after you complete. In year six a fee arrives, set at 1.75% of the equity loan’s value. From there it goes up every year by the consumer price index (the standard measure of rising prices) plus 2%.
Put numbers on it and the picture gets clearer. On a £40,000 equity loan, the year-six fee works out at £700 a year, or roughly £58 a month. Because it keeps climbing, by year ten or fifteen that monthly cost can be a lot harder to ignore. The earlier you plan, the more room you have to decide what to do.
How to repay the equity loan
You can settle the equity loan in full whenever you like by paying the government its percentage share of the home’s current market value. First you get an independent valuation, and the Help to Buy administrator uses that figure to set the amount you owe.
You do not have to clear it all at once, either. Partial repayments are allowed in chunks of at least 10% of the property’s current value. Each one shrinks the government’s share and trims the fees you pay from then on. Every partial repayment needs a fresh valuation and carries an administration fee.
Remortgaging to repay the loan
A common route is to remortgage and use the money raised to pay off the equity loan. In practice you borrow more on your mortgage to cover the government’s share. For that to work you need enough equity in the property and an income that comfortably supports the larger monthly payments.
A broker earns their keep here by finding a lender happy to advance the extra and getting the remortgage over the line before your equity loan fees climb again. Line it up with the end of your current fixed rate and you can sidestep early repayment charges, the penalty some lenders apply for leaving a deal early.