What Is Help to Buy?
Help to Buy was a government-backed scheme in England designed to help first-time buyers purchase a new-build home. Under the scheme, the government provided an equity loan of up to 20% of the property's value (40% in London), allowing buyers to secure a mortgage with just a 5% deposit.
The scheme ran in various forms from 2013 until March 2023, when it closed to new applications. While no new Help to Buy equity loans are being issued, hundreds of thousands of existing borrowers still have Help to Buy mortgages and equity loans in place.
If you bought your home through Help to Buy, understanding how the equity loan works and what your remortgaging options are is essential, particularly as the interest-free period on your equity loan comes to an end.
How the Equity Loan Works
The Help to Buy equity loan is interest-free for the first five years. From year six onwards, you're charged a fee of 1.75% of the loan's value, which increases annually by the Consumer Price Index (CPI) plus 2%. This means the cost of the equity loan rises each year and can become a significant additional expense.
Crucially, the equity loan is based on a percentage of your property's current value, not the amount you originally borrowed. If your home has increased in value, the amount you need to repay will be more than the original loan. Conversely, if it's fallen, you'll repay less.
You can repay the equity loan at any time, either in full or in part (minimum 10% of the property's current value). Many homeowners choose to repay the equity loan when they remortgage, rolling the cost into their new mortgage if their property has gained enough equity.
Remortgaging With Help to Buy
Remortgaging a Help to Buy property has some additional steps compared to a standard remortgage. You'll need to decide whether to keep the equity loan in place, make a partial repayment, or repay it in full as part of the remortgage.
Not all lenders accept Help to Buy properties for remortgages, so your choice of products may be more limited. However, many mainstream lenders do offer remortgage deals for Help to Buy borrowers. A mortgage broker experienced with Help to Buy can help you navigate the options.
If you want to repay the equity loan, you'll need to have enough equity in your property to borrow the additional amount through your new mortgage. Your lender will need to agree to the higher loan amount, and you'll need a valuation to confirm the property's current market value.
Options When the Interest-Free Period Ends
As you approach the end of the five-year interest-free period, you have several options to consider. The most common are repaying the equity loan in full, making a partial repayment to reduce the ongoing fees, or continuing to pay the annual charge while planning your next move.
Repaying the equity loan in full eliminates the annual fees entirely and simplifies your financial position. This is often the best option if you've built up enough equity through property price growth and mortgage repayments. You'll typically do this by remortgaging to a new deal that includes the equity loan repayment amount.
If you can't repay in full, making a partial repayment of at least 10% of the property's current value will reduce the amount on which fees are charged. Even if you can't repay anything immediately, the annual fees, while rising, are still relatively modest in the early years after the interest-free period ends.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.