Remortgage Help to Buy

Understanding the Help to Buy Equity Loan

Before diving into the remortgage process, it is important to understand how the Help to Buy equity loan works and how it affects your options. The Help to Buy equity loan scheme was available in England and allowed eligible buyers to purchase a new build home with just a 5% deposit. The government provided an equity loan of up to 20% of the purchase price (40% in London), and you took out a mortgage for the remaining balance.

Key features of the equity loan:

• Interest-free for five years — The equity loan is interest-free for the first five years. From year six onwards, you are charged a fee of 1.75% of the loan's value, increasing annually by RPI plus 1%.
• Based on property value, not the original loan amount — The equity loan is a percentage share of your property's value, not a fixed cash amount. If your property increases in value, the amount you owe on the equity loan increases proportionally. Conversely, if your property decreases in value, the amount owed decreases.
• Repayment options — You can repay the equity loan in full at any time, or make partial repayments of at least 10% of the property's current value. You can also repay it when you sell the property.

Understanding these features is crucial because they directly influence your remortgage strategy. The equity loan sits as a second charge on your property, which means your main mortgage lender needs to be comfortable with its presence.

The Help to Buy scheme closed to new applicants on 31 October 2022, with all completions required by 31 March 2023. However, hundreds of thousands of homeowners still have active Help to Buy equity loans and will need to consider their remortgage options as their initial deals come to an end.

When Should You Remortgage Your Help to Buy Property?

Timing is particularly important when it comes to remortgaging a Help to Buy property, largely because of the interest charges that begin in year six of the equity loan.

Before your mortgage deal ends

As with any mortgage, you should start looking at remortgage options around six months before your current deal expires. This gives you time to compare deals, secure a rate, and complete the legal process before you revert to your lender's SVR.

Before year six of your equity loan

If your equity loan is approaching its fifth anniversary, the prospect of interest charges beginning is an important motivator to act. From year six, you will start paying 1.75% annually on the equity loan amount, and this charge increases each year in line with RPI plus 1%. If you can afford to repay the equity loan before these charges begin, doing so can save you significant money over the long term.

When you have built up equity

If your property has increased in value or you have made significant mortgage repayments, you may now have enough equity to remortgage onto a more favourable LTV band. More equity means better rates and more lender options.

When you can afford to repay the equity loan

If you are in a financial position to repay the equity loan, combining this with a remortgage can be very effective. You would take out a larger mortgage to cover both your existing mortgage balance and the equity loan repayment. This removes the second charge on your property and eliminates the ongoing equity loan interest fees.

Key consideration: repaying the equity loan costs money too

Remember that repaying the Help to Buy equity loan involves costs beyond the loan amount itself. You will need to pay for an independent valuation (from a RICS-qualified surveyor), legal fees for removing the second charge, and potentially a higher mortgage arrangement fee if you are borrowing more. Factor all of these costs into your calculations to ensure that repaying the equity loan makes financial sense.

Remortgaging Without Repaying the Equity Loan

Not everyone is in a position to repay their Help to Buy equity loan when they come to remortgage. The good news is that you can remortgage your main mortgage without repaying the equity loan, although your options will be more limited.

Lender restrictions

When the Help to Buy equity loan remains in place, it acts as a second charge on your property. Not all lenders are willing to offer a mortgage on a property with a second charge, which narrows your options. However, there are lenders who specifically accommodate Help to Buy remortgages and are comfortable with the equity loan remaining in place.

Combined LTV considerations

Lenders who accept Help to Buy remortgages will look at the combined loan-to-value ratio, which includes both your main mortgage and the equity loan. For example, if your property is worth 300,000 pounds, your mortgage balance is 180,000 pounds, and your equity loan represents 20% (60,000 pounds), your combined LTV is 80%. Some lenders have maximum combined LTV limits that could affect the deals available to you.

Interest on the equity loan

If you remortgage without repaying the equity loan and your loan is in year six or beyond, you will continue to pay interest on it in addition to your mortgage payments. These combined costs should be factored into your overall housing budget.

Product transfers

If finding a new lender willing to accept the Help to Buy second charge proves difficult, a product transfer with your existing lender may be the most practical option. This involves switching to a new deal with the same lender and usually does not require a new valuation or the approval of the equity loan administrator.

Target Homes

The administration of Help to Buy equity loans is managed by Target Homes (formerly Target HCA). If you are remortgaging without repaying the equity loan, your new lender will need to obtain consent from Target Homes for the remortgage. Your solicitor or broker can help facilitate this process.

Repaying the Help to Buy Equity Loan Through Remortgaging

For many homeowners, remortgaging to repay the Help to Buy equity loan is the most financially sensible strategy, particularly as interest charges on the loan begin or increase. Here is how the process works:

Step 1: Get a valuation

You will need an independent RICS valuation of your property. This determines the current market value and, therefore, the amount you need to repay on the equity loan (since it is a percentage of the current value). The valuation must be carried out by a surveyor from the approved panel and is typically valid for three months.

Step 2: Calculate the repayment amount

The amount you owe on the equity loan is the original percentage multiplied by the current market value. For example, if you have a 20% equity loan and your property is now worth 280,000 pounds, you owe 56,000 pounds. If it is worth 320,000 pounds, you owe 64,000 pounds.

Step 3: Apply for a remortgage

You apply for a new mortgage that covers your existing mortgage balance plus the equity loan repayment amount. The new lender will assess your affordability based on the total amount you wish to borrow and the property's current value.

Step 4: Legal process

Your solicitor will handle the legal work, including redeeming your existing mortgage, repaying the equity loan to Target Homes, and removing the government's second charge from the property title. This process can take several weeks.

Step 5: Completion

Once everything is in place, the new mortgage completes, the existing mortgage is redeemed, and the equity loan is repaid. You are left with a single mortgage on the property with no second charge.

Affordability considerations

Borrowing more to repay the equity loan means higher monthly mortgage payments. However, this needs to be weighed against the ongoing and increasing equity loan interest charges that you would otherwise face. In many cases, the total monthly cost of a larger mortgage is less than the combined cost of a smaller mortgage plus equity loan interest, particularly as the equity loan charges increase year on year.

Costs and Fees Involved in Help to Buy Remortgages

Remortgaging a Help to Buy property involves several costs that you should budget for in advance. Being aware of these will help you plan effectively and avoid any unwelcome surprises.

RICS valuation for equity loan repayment

If you are repaying the equity loan, you will need an independent RICS valuation from the approved panel. This typically costs between 200 and 500 pounds, depending on the value and location of the property. The valuation must be submitted to Target Homes as part of the repayment process.

Mortgage arrangement fees

Your new mortgage deal may come with an arrangement fee, which can range from a few hundred pounds to over 1,000 pounds. Some lenders offer fee-free products, though these may have slightly higher interest rates. Consider whether it is more cost-effective to pay a fee for a lower rate or choose a fee-free deal.

Legal and conveyancing fees

You will need a solicitor to handle the remortgage and, if applicable, the equity loan repayment. Legal fees for a Help to Buy remortgage are often higher than for a standard remortgage due to the additional work involved in liaising with Target Homes and removing the second charge. Expect to pay between 500 and 1,500 pounds for the legal work.

Early repayment charges on your existing mortgage

If you are remortgaging before your current deal has ended, check whether any early repayment charges apply. These can be substantial and may affect the overall financial benefit of switching. If possible, timing your remortgage to coincide with the end of your current deal avoids this cost.

Equity loan administration fee

Target Homes may charge an administration fee for processing the equity loan repayment. This is a relatively small charge but should be factored into your overall budget.

Valuation fee for the new mortgage

Your new lender may charge for a valuation of the property, though some mortgage deals include a free valuation. If you are also obtaining a RICS valuation for the equity loan repayment, be aware that these are separate valuations and one cannot typically be used for both purposes.

Tips for Getting the Best Help to Buy Remortgage Deal

Here are practical strategies to help you navigate the Help to Buy remortgage process and secure the most favourable terms:

Plan ahead

Start planning your remortgage well in advance, ideally at least six to nine months before your current deal ends or before the equity loan interest charges begin. This gives you time to explore all your options, obtain valuations, and complete the necessary paperwork without being rushed.

Understand your total costs

Before deciding whether to repay the equity loan, calculate the total cost of keeping it versus repaying it. Consider the increasing interest charges on the equity loan, the higher mortgage payments you would have if you borrow more to repay it, and the various fees involved. A mortgage adviser can help you run the numbers and determine the most cost-effective approach.

Build your equity

The more equity you have, the better your remortgage options. If possible, make overpayments on your current mortgage to reduce your outstanding balance and improve your LTV ratio. Even small regular overpayments can make a meaningful difference over time.

Consider partial repayment

If you cannot afford to repay the equity loan in full, you may be able to make a partial repayment of at least 10% of the property's current value. This reduces the equity loan percentage and lowers the ongoing interest charges. You can then plan to repay the remainder at a later date.

Work with an experienced broker

A mortgage broker who has specific experience with Help to Buy remortgages can be invaluable. They will understand the complexities, know which lenders are most accommodating, and can help coordinate the various elements of the process, including liaison with Target Homes.

Check your credit profile

Ensure your credit report is accurate and up to date. Pay down any outstanding debts where possible and avoid taking on new credit in the months leading up to your application. A strong credit profile will give you access to the most competitive rates available.