How the Help to Buy Equity Loan Works as a Second Charge
The Help to Buy equity loan is a second charge mortgage held by Homes England (formerly administered through Target HCA, the fund manager appointed by the government). As a second charge, it ranks behind your main mortgage lender in priority — meaning that if the property were ever repossessed and sold, the main mortgage lender would be repaid first and Homes England would receive its share of the proceeds from what remained. This second charge position affects how your main mortgage lender views the overall security.
Most mainstream mortgage lenders will lend on a Help to Buy property where the equity loan second charge remains in place, provided they have given their consent to the arrangement. When you remortgage your main mortgage while retaining the equity loan, your new lender needs to be aware of the second charge and must agree to take the first charge position behind it. Not all lenders will do this, but a significant number who are familiar with the Help to Buy scheme will accept these applications.
The equity loan does not have to be repaid when you remortgage — unless you choose to redeem it at that point. The loan is repayable in full when you sell the property, at the end of the 25-year term, or when you choose to staircase — paying off part or all of the equity loan before either of those trigger points. When repayment eventually happens, the amount owed is calculated as the same percentage of the property's current market value as was originally borrowed, not the original loan amount. This means if your property has risen in value, the amount owed to Homes England will have increased proportionately.
From year six onwards, the equity loan accrues an annual interest charge of 1.75% of the outstanding loan, rising each year in line with the Consumer Price Index plus 2%. This interest charge is in addition to the main mortgage payment and must be factored into your overall affordability assessment when remortgaging. Lenders will check whether you are up to date with these payments and may take them into account when assessing how much new mortgage borrowing you can afford.
Staircasing: Paying Off Part of the Equity Loan
Staircasing refers to the process of paying off part of the Help to Buy equity loan — reducing the government's percentage stake in your property without repaying the full amount. Staircasing can be done in minimum tranches of 10% of the current open market value, and you can staircase as many times as you wish until the equity loan is fully redeemed. Each time you staircase, a RICS-registered valuer must assess the current market value of the property, and the redemption payment is calculated as the appropriate percentage of that value.
Staircasing is most commonly done as part of a remortgage transaction. The homeowner increases their main mortgage borrowing sufficiently to repay part or all of the equity loan, reducing or eliminating the government's second charge. This has the effect of increasing the main mortgage balance but simplifying the overall financing structure — and may open up access to lenders and products that are not available to borrowers with an outstanding Help to Buy second charge.
The decision whether to staircase and by how much depends on a number of factors. If the property has risen significantly in value, the equity loan repayment will be larger than the original loan amount — so paying it off sooner may be preferable. If the property has not risen much in value, the repayment amount may be close to the original loan, making staircasing straightforward. The interest charges that begin from year six also make retaining the equity loan increasingly expensive over time, which strengthens the case for redemption when the opportunity arises.
Getting an independent RICS valuation is a required step before any staircasing transaction. The valuation is agreed between the homeowner and Homes England and determines the redemption amount. There is typically a valuation fee payable, and the process involves legal work to remove or vary the second charge. Your solicitor and mortgage broker can coordinate this alongside the remortgage to ensure both transactions complete simultaneously.
