What is Help to Buy?
The Help to Buy Equity Loan scheme allowed buyers to secure a government loan alongside a mortgage and 5% deposit of their own, in order to buy a new build home. Initially it was available to anyone buying a new build property whether they were a first time buyer or moving home, although later it was restricted to first time buyers only.
Outside of London the government lent up to 20% of the property price interest-free for the first five years. After the initial 5 year period the government loan attracts interest at 1.75% of the amount owed, and the interest charged will increase every April at a rate of 2% plus the Consumer Price Index until it’s repaid.
The Help to Buy loan needs to be repaid either after 25 years or when you sell your home. If you sell then you’ll need to repay the same percentage of the sale price that you borrowed initially, so typically 20%. This means if your home increased in value then so will the amount you have to pay back.
Help to Buy was a Government scheme designed to help people get onto the property ladder. The scheme was launched in 2013, and closed to applications on the 31st of October 2022. Purchasers will need to have completed their move by March 2023 and as it stands, no further equity loan scheme has been announced.
Here we’ll explain everything you need to know about the scheme - and how to remortgage a Help to Buy property.
Help to Buy London
In London, due to higher property prices, a larger government loan worth up to 40% of the property price was available. This meant once you’d put down your 5% deposit, you’d only need a mortgage for 55% of the property price.
As with the Help to Buy scheme outside the capital, the loan is interest-free for the first five years, and from year six you’ll be charged interest in the same way as the standard scheme.
How does Help to Buy remortgaging work?
If you’ve come to the end of your mortgage deal and want to switch to a new one with your current lender, and don’t wish to borrow any additional money, you can do so without first informing the Help to Buy administrator.
However, if you want to switch to a new lender or borrow more money when you remortgage, you must let the Help to Buy administrator know in advance. If you want to borrow more money you can do so for the following reasons;
- Pay back all or part of your equity loan
- Make structural alterations when you have permission
- Fund a transfer of equity (add or remove someone from the property)
You may also be able to borrow more to pay off leasehold or mortgage arrears, but you need to discuss this with the administrator as they consider each request individually.
Is it difficult to remortgage a Help to Buy property?
Because of the nature of the Help to Buy scheme, there are some things to be aware of when it comes to remortgaging.
The main one is that some lenders may stipulate that you must pay off the equity loan before you can remortgage with them - which, as you’re not required to pay back the equity loan until the end of its term (often twenty-five years), may not make sense to do.
However if you’ve reached the end of your current deal there are options available to you, including allowing you to remortgage to pay off Help to Buy.
Pay off the loan in full
If you have enough savings, you can simply pay off the equity loan. That means you’ll have a lower loan to value ratio, giving you access to better remortgage deals.
Remortgage at a higher LTV
Another option to consider is borrowing money against your home, which can be used to pay off your equity loan. When you remortgage to pay off a Help to Buy equity loan, it means you’re taking on a bigger mortgage - but it also ensures your property is yours and yours alone - meaning you’ll benefit fully from any future increase in value.
