The Government Help to Buy scheme was a popular option for First Time Buyers between 2013-2021. The scheme allowed buyers to get onto the property market with the help of a 20% equity (40% in London) loan on a new build property. This meant that buyers only needed to raise a 5% deposit for their starter homes. This current mortgage market has higher rates than when the scheme was active. A Help to Buy Remortgage will have a few more things to consider. Read on to find out more.
Paying back your Help to Buy Loan
Firstly, you owe 20% of the current price of your property NOT the price of the property when you took out the Help to Buy equity loan. Chances are that your property has increased in value since then. This is not a bad thing, it’s just something to consider when working out what you owe. You do not have to pay interest on this loan if you pay it back in 5 years. After this you will pay interest. Any interest or fees that you incur when remortgaging does not go towards your loan payment. You can pay back part or all of your loan at any time. Any payments made will reduce the monthly interest payments that are charged in the 6th year of paying the load and beyond. The loan must be paid if you:
- reach the end of the equity loan term (normally 25 years)
- pay off your repayment mortgage
- sell your home
Full details at:
https://www.gov.uk/help-to-buy-equity-loan
Remortgaging with a help to buy loan
Firstly, you need to decide if you want to pay off the Help to Buy equity loan when you remortgage. If you do you can do this in various ways. You could take money from the funds in your house, which is called raising capital from your funds. If you do this, your monthly payments will go up, because ultimately you will be borrowing more money than you previously had done. However, you will now be the sole owner of all capital in your property.
You can also use money that you have saved or been gifted to pay off this loan. If you can, I recommend you paying off the loan at this point (up to 5 years) to avoid paying any interest. After this point the remortgage will be the sam process as other remortgages, but you may find you need to reassess your affordability and lifestyle with your knew payment plan. We can help you with this.
If you cannot afford to or choose to continue borrowing the Help to Buy loan, you will be charged interest to do so. You will be charged an annual fee of 1.75% on the amount of the outstanding loan; this fee will increase each year with inflation. Not all companies will offer products that support you in continuing with the Help to Buy payments. We would support you in finding a lender that is the best fit for your situation.
Read here for more details:
https://www.gov.uk/guidance/how-to-remortgage-your-help-to-buy-home-without-borrowing-more-money
https://clementsfinancial.co.ukmortgages/remortgages/
when is it a good time to pay back Help to Buy loan?
You can pay your Help to Buy loan back at any time during your mortgage product. It must be paid by 25 years which usually falls in line with the end of your product. After 5 years the loan will start charging you interest that increases every year. We would recommend that you make arrangements to pay this loan back within 5 years of taking. This would ensure you avoid paying the interest on the loan. When you pay the money back, the amount must be based on the current price of the property.
What else do i need to do?
You will need a solicitor to manage the transfer of funds, as with any other type of remortgage. You will also need to contact a RICS surveyor to get an accurate valuation of your property.
We have created an FREE downloadable Guide including all the information you will need. It includes interactive journal style pages to complete with your personal information. Hopefully this makes the process easier for you.
