4 min read
Remortgaging your Help to Buy is more complex than a standard remortgage. We'll take you through everything you need to know below so you can feel confident about remortgaging with a Help to Buy Equity Loan.
SEO Specialist and Senior Copywriter
Published November 18th 2024
Updated on November 18th 2024
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Help to Buy Equity loans are only interest free for the first five years. When this interest-free time is up, the government will start charging you interest, increasing your monthly repayments.
When you remortgage your Help to Buy loan, you can add it to your mortgage or pay it off entirely. This way, when you sell your home, you’ll keep 100% of any increase in its value, since you would have already paid the government their 20% share when you remortgaged.
The Help to Buy Equity Loan scheme was a great way for first-time buyers to get onto the property ladder. This government backed initiative, first introduced in 2013, came to an end in March 2023. When your initial Help to Buy mortgage deal ends (usually a fixed rate mortgage, lasting between two and five years), you can remortgage.
Here we take you through how to remortage your Help to Buy, so you can feel confident when it comes to remortgaging.
In this article:
In short, yes. When your initial Help to Buy mortgage is nearing the end you should look to remortgage. If you don’t, you will default to a standard variable rate (SVR) mortgage, which usually has a much higher interest rate.
It is however more complex than a standard mortgage, as there are strict rules that come with remortgaging your Help to Buy and not all lenders offer products. This is because you essentially have two loans, which makes you more of a risk in the lender’s eyes. We would recommend speaking to a mortgage broker six months before your deal is due to end to improve your chances of a successful remortgage application.
Help to Buy remortgage deals are typically more expensive (higher fees and interest rates) than standard remortgaging, however they are usually cheaper than defaulting to the SVR.
Remortgaging would allow you to add the government loan to your mortgage value and use your new mortgage to repay the full amount. This option removes the need to pay back the 20% equity loan when you come to sell. This means that when you do decide to sell, you get 100% of any increase in your home’s value. In fact, many lenders require borrowers to pay off their equity loan as part of the remortgage process.
You can only do this if your property has gone up in value, as remortgaging would allow you to access and release the equity you’ve already built up to pay back the loan. Even if your home hasn’t increased in value, you could still remortgage to pay off your equity loan, however the loan-to-value (LTV) amount will be higher than your previous Help to Buy mortgage.
As always, you will need consider if you can afford the higher monthly repayments that this could bring, and we always recommend that you to talk to a mortgage adviser.
Interest savings: One compelling reason to consider remortgaging is to avoid the interest that kicks in on your equity loan after five years. By incorporating the loan into your mortgage, you sidestep these additional costs, potentially saving a significant amount over time.
Full equity retention: When you remortgage, you not only clear the equity loan but also ensure that you retain all future growth in your home's value. This can be a substantial financial advantage, especially in a rising property market.
Get can give you a clear and accurate conveyancing quote when you're ready to remortgage your Help to Buy
If you can’t afford to repay your Help to Buy equity loan in full, staircasing could be a great option.
Staircasing is when you pay back your equity loan in chunks, over a period of time. The minimum you can pay using staircasing is 10% of the total current value of your home (not the original purchase value). As the most common equity loan amount is 20%, this will mean that you’ll have to pay off at least half of your loan using staircasing. You’ll also build up equity in your home whilst keeping your loan repayments manageable.
You should bear in mind that will also need to pay admin and survey valuation fees every time you pay off a chunk of your loan.
If you can afford it, you can pay off your equity loan with savings. This means that you can remortgage your Help to Buy at a lower LTV, and you can access lower interest deals and save yourself money.
You don’t have to pay off your equity loan when the government starts charging interest. You can keep the loan for 25 years, or until your property is sold. However, the interest payments will stack up if you don’t pay it off quickly.
You will struggle to remortgage without paying off the loan, as most lenders require that the loan is repaid as part of the mortgage process.
However, it's important to note that some lenders do offer the option to remortgage while keeping the equity loan intact. This can be advantageous if you prefer not to integrate the government loan into your mortgage. Keep in mind that these choices might be more limited and could come with higher fees.
Help to Buy Equity loans are only interest free for the first five years. When this interest-free time is up, the government will start charging you interest, increasing your monthly repayments.
In the sixth year, the interest rate begins at 1.75%. From there, the rate will increase annually. If you took out your Help to Buy loan between 2013 and 2021, expect the rate to rise in line with the Retail Price Index (RPI) plus an additional 1% each year. For loans obtained between 2021 and 2023, the interest climbs by adding the Consumer Price Index (CPI) plus 2% annually. More information can be found on the gov.uk website
Understanding these rates will help to you prepare for any upcoming changes in your repayments and budget accordingly.
When you've purchased a home through the Help to Buy equity loan scheme, the process of selling can seem daunting. However, it doesn't necessarily mean your property will be difficult to sell. Here's what you need to know:
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Before selling, the primary requirement is that the equity loan must be repaid. This repayment usually occurs during the sale transaction, so if you haven't settled it earlier, now is the time.
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In most cases, you'll need a current market valuation of your property to determine the amount owed on the equity loan. This valuation has to be conducted by an independent surveyor.
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There are additional legal steps involved, including notifying the relevant authorities managing the Help to Buy scheme. This ensures all parties are informed and agree to the terms of the sale and the loan repayment.
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Your property isn't restricted to a specific segment of buyers just because it was purchased through Help to Buy. As with any home, factors like general market conditions, location, price, and features will play a significant role in attracting potential buyers.
As always, we recommend you speak to a mortgage adviser to discuss what is the best option for you when thinking about remortgaging your Help to Buy Equity Loan.
Once you have decided which way to go, there are a few steps to need to take:
Get a valuation - this will tell you what your home is worth and how much you owe the government (as the loan is a fixed percentage of the current value of your home).
Find a conveyancer – they will handle the legal side of clearing the loan. Naturally, we can help you with that.
Fill in your paperwork - this will include a Loan Redemption Form, which you can get from the housing association that handled your Help to Buy. There is normally a filing/admin fee (£200-£250) to get the redemption process under way.
Redemption letter - this will be posted to you and will include an estimated repayment figure.
Instruct your conveyancers – they will arrange the completion date when the loan will be repaid. The organisation in charge of collecting the equity loan, called Target, will then issue an “authority to complete”.
Payment - your conveyancer will transfer the money to Target and your loan will be cleared.
Remortgaging your Help to Buy equity loan is a more complex process, however it can save you on your monthly repayments when you do.
When you are ready to start, get your remortgage conveyancing quote, or feel free to get in contact with one of our Move Specialists.
If house prices haven’t gone up over the five years and your property’s value has stayed the same, one option is to remortgage at a higher loan-to-value (LTV) to pay off your Help to Buy equity loan.
Even if property prices haven’t increased, keeping up with your mortgage repayments means you’ll have reduced your mortgage and built up equity in your home.
To pay off your equity loan, you’d need to increase your mortgage, which might mean higher monthly repayments. The benefit of doing this is once the equity loan is repaid, any future increase in your home’s value will be yours to keep.
Remember, the Help to Buy equity loan is based on a percentage of your home’s value, so if property prices go up, the amount you owe increases too. Clearing this loan by borrowing more on your mortgage means that any future growth in value belongs to you alone. That said, it’s not always simple, as the maximum LTV varies by lender.
If your house has dropped significantly in value, your options may be limited, and you won’t be able to borrow more. This means that if you sold your home, it wouldn’t cover the balance left on your mortgage.
In this situation, your best option may be to stay on the standard variable rate (SVR) and wait until property prices go back up.
In the situation where your property value has not increased, or you are in negative equity we’d recommend speaking to a mortgage broker to see what is the best course of action for you.
Applying for a remortgage can sometimes result in rejection, we understand this is a frustrating experience for any homeowner. Knowing the reasons why and how to address them can offer you a clear path forward.
Credit history concerns: One of the most common barriers to remortgaging is a poor credit score. Lenders closely review your credit history to assess risk. Late payments, defaults, or high credit card balances could signal potential issues.
Negative equity: If your property value has gone below the amount you owe on your mortgage, you might find yourself in negative equity. Lenders typically shy away from these situations due to increased risk.
Insufficient equity: Even if you're not in negative equity, having limited equity can also be problematic. Lenders usually require a certain amount of equity to ensure that refinancing is worthwhile for both parties.
Unstable income: A change in your employment status or irregular income stream might raise a red flag. Lenders seek assurances that you'll consistently meet mortgage payments.
High debt-to-income ratio: A high ratio indicates to lenders that a significant portion of your income goes toward debt repayment, reducing the amount of disposable income for additional financial obligations.
Review lender feedback: Understand the specific reasons behind any denial by asking for detailed feedback from the lender. This will guide your next steps more effectively.
Improve your credit score: Correct any errors on your credit report, pay off outstanding debts (where possible), and consistently meet future payment deadlines to boost your score over time. Read our article on how to improve your mortgage credit score for more information.
Increase equity: Consider making additional payments or home improvements that enhance your property’s value, thereby increasing your equity.
Explore alternative lenders: Not all lenders have the same criteria. Look into different financial institutions or mortgage brokers who may be more accommodating.
Consult financial advisors: Professional advice can offer personalised strategies to address your unique financial situation, potentially opening up other refinancing options.
Remortgaging a property that has spray foam insulation can come with challenges. Recently, many mortgage lenders are having concerns about spray foam because of its potential to impact ventilation and roof structure.
This means that having spray foam insulation could limit your remortgaging options or require additional checks to satisfy lenders. To avoid complications, we recommend working with a surveyor who can assess the condition of the spray foam and provide a report that reassures both you and potential lenders.
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