How to repay your help to buy

 

The help to buy equity loan scheme was introduced to help people onto the housing ladder who may otherwise struggle with a deposit. The scheme offers a 20% deposit contribution towards buying a new build property. The buyer would put down a 5% deposit, use the 20% contribution from the government and then a 75% mortgage. The 20% deposit contribution is classed as an equity loan and is interest free for the first 5 years. After which interest is charged at 1.75% per year after this. 

 

As this is an equity loan the % you borrow remains that % of your property. So if your house increases in value, the equity loan increases with it. You can borrow between 5-20% of the property value depending on your needs. Here's an example to explain how the loan can work: 

 

You buy a £200,000 property with a 20% help to buy equity loan of £40,000. After 5 years you would like to repay the loan in full. Now your property is valued at £250,000, this means your Help to buy loan is valued at £50,000 rather than the initial £40,000 you borrowed. 

 

Property in the UK historically increases in value year on year due to high demand and lack of supply. Our best advice is to clear the loan as soon as you are able to so that you clear the help to buy loan when it is smaller. As the loan begins to incur interest of 1.75% after the initial 5-year interest free period that interest payment will continue to grow if you leave the loan to grow with the increase in property value over time. So, clearing it sooner can save you a considerable amount of money. 

 

Now, the scheme did come to an end in March 2023, but this guide is for those who already have a help to buy loan in place and are looking to repay that now or in the future. If you do have a help to buy equity loan in place that is coming to the end of its 5 year interest free period or you are planning for the future to repay your loan there are 4 main ways for you to clear your help to buy loan. We have listed them below and will go through each of them one by one in detail. 

 

If any of these methods are of interest to you get in touch with us today on the details at the bottom of this guide and let us help you to clear your help to buy loan. 

 

If you are fortunate enough to have the surplus money in the bank you can just clear the help to buy loan with your savings. This may be from saving from the day you took out the help to buy loan or because you're an avid saver by nature. 

 

Remortgaging to release the equity you have built up in your home over the 5 year period via a mixture of natural property growth and paying down your mortgage for 5 years is the most common method we see of repaying your help to buy loan. As long as your mortgage affordability supports remortgaging for a higher amount you would take out a new mortgage for the amount of your current outstanding mortgage balance plus your help to buy loan amount, repay your existing mortgage in full and help to buy and you are then left with a new mortgage for a slightly higher amount. 

 

We do see a lot of people using the help to buy loan scheme as a stepping stone to get themselves on the property ladder, create equity and then on to a more long-term home. Just like with the remortgage method you have created equity over the last 5 years of house price growth and paying down your mortgage. Over those 5 years you may have had career growth and/or a pay rise which increases your mortgage affordability. That combined with the increased equity you have in your house will allow you to buy a more expensive home. Selling the house and clearing the help to buy loan in full will leave you with left over funds to put down as a deposit on a new home, along with a new mortgage you are on your way up the housing ladder. 

 

You can actually do nothing if you wish. You don’t have to do anything with the loan, you can let it move out of the interest free period and start to pay the interest on the loan at 1.75% per year. For example if your help to buy equity loan currently sits at £40,000 you would pay £700 per year in interest, or £58.33 per month. The interest rate is much lower than any other type of loan you could achieve so its not a huge disaster to begin paying interest at such a low amount. 

 

 

1. Contact your help to buy provider 

To start the process of repaying your help to buy loan you must first contact your help to buy loan provider which in most cases is Target. To do this you can head over to the government website and download their application form - Repay your Help to Buy: Equity Loan - GOV.UK (www.gov.uk) 

 

2. Request a valuation or instruct a RICS surveyor independently 

To establish the value of your help to buy equity loan you must instruct an independent RICS (Royal institute of chartered surveyors) for them to value your property. Target will only accept a survey completed by a qualified RICS surveyor. 

 

3. Instruct a solicitor to handle the repayment of the loan 

You will need a solicitor to act for you in this process as you will be removing a 2nd charge on the land registry and handling the money from your chosen repayment method over to Help to buy. 

 

4. Determine which method you wish to use to clear the loan 

From the methods above you will need to choose one or even 2 (if you are remortgaging to release equity and adding your own funds together) to repay the loan. Once you have decided you will need to let your solicitor know your intentions and then instruct them to act on that basis. 

 

5. Speak with a mortgage adviser 

If you are remortgaging to repay the help to buy loan with the equity in your property you will need to find a mortgage adviser to help you find the best mortgage to suit your needs. 

 

6. Mortgage application 

Once you are happy with the mortgage recommended by your adviser its time to fully submit your remortgage application. A remortgage application is very similar to when you submitted your initial mortgage application to buy the property in the 1st place, but this time you are submitting an application to a different lender for a bigger loan amount than your existing mortgage. The surplus funds then go to repay Target. 

 

7. Legal process 

Due to the additional legal work required we recommend using an independent solicitor to carry out the legal work for your remortgage. This is due to the additional party involved (Help to Buy) so there is additional legal work involved and additional layer of communication required. We recommend a local independent solicitor who can act quickly and provide you with the level of service and updates to reduce the time taken to complete the work and the stress involved. 

 

8. Completion 

Once the legal work has been completed and the funds drawn down from your new mortgage, your solicitor will organise for the repayment of your existing mortgage along with the repayment of Target and any surplus funds will be repaid to you.