Raising funds to repay help to buy loans
Welcome to Fox Davidson, we are a UK mortgage brokerage. One of our specialist areas of expertise is helping and advising clients on their options when it comes to repaying the help to buy government loans. In this article, we will look at what help to buy is, the terms of the Government loan and how you can remortgage to repay the equity loan.
If you wish to remortgage your property to repay your government loan, please do get in touch and one of our mortgage advisors will discuss your options with you.
What is help-to-buy?
Help to Buy was a government loan incentive scheme designed to help buyers with the purchase of newly built properties. The loan provided new build home buyers with a loan from the government at favourable terms. The loan provided up to 20% of the property’s value.
The scheme allowed home buyers to contribute as little as 5% deposit and to borrow at an overall loan-to-value of 75%.
The Help to buy scheme ran from 2013 until 2022.
What interest is payable on the Help to Buy government loan?
The government loan incurred 0% interest during the first 5 years. In year 6 the loan attracts a rate of 1.75%. This rate increases each tax year (April) in line with the consumer price index plus 2%. If you purchased your home using the equity loan version of the scheme which ran from 2013 to 2021 then your rate would increase by the retail price index RPI plus 1%.
As well as paying interest you also must pay £1 a month in management fees.
How to repay the government help to buy loan.
You can pay back all or part of your equity loan at any time. Note that the minimum amount you can repay is 10% of the property value. It is important to note that the loan is not a fixed sum, it is a % of your house value, as set out in the example below.
Market value of your home
Equity loan percentage
Bought for £400,000
Value at time of repayment £600,000
Paying back the full 20%
Was the help-to-buy scheme a good idea?
The equity loan scheme helped many buyers to purchase property they could otherwise not afford for lack of deposit. It also allowed them to borrow at competitive rates of interest at 75% loan to value. The scheme was good for house builders too. The UK government are also doing very nicely out of the scheme.
Using the example above the government loaned £80,000 at 0% and was repaid £120,000. Assuming they were repaid as soon as the 0% period ended they would have received £40,000 for lending £80,000. That’s an equivalent interest rate of 50% or 10% per year. The only way the government don’t do well out of help to buy is if the housing market crashes, they won’t let that happen.
Using a mortgage broker to repay a help to buy loan.
Working with a mortgage broker will give you access to lenders across the market. Your mortgage broker will advise you of your options for raising funds to repay your help to buy loan. Mortgage lenders will assess affordability in the normal way and all applications are subject to the usual credit checks.
To discuss your help to buy a remortgage with one of our mortgage brokers please do get in touch.
What if I sell my house to repay the help-to-buy scheme?
You can repay the help to buy a loan by selling your property. You will owe the government the same % of equity as you borrowed when you bought the house. The value of your home on which the current % of equity is calculated will be determined by an independent (RICS) surveyor.
What rate does the government loan revert to after the 0% period?
After the first 5 years, the 0% loan reverts to a rate of 1.75%. Depending on which scheme you took out, this rate increases annually in line with CPI + 2% or RPI plus 1%.
Can I remortgage to repay part of the government help to buy a loan?
You can repay part of the help to buy a loan when you remortgage. You must repay at least 10% of the equity loan when you remortgage.
What fees do I have to pay to repay the help to buy a loan?
When you repay all or part of the help to buy a loan there will be an administration fee to pay. This is typically £200.
How did help to buy London work?
Help to Buy London worked in the same way as the normal scheme except that the deposit amount available from the scheme was 40%. This reflected the fact that property prices in London were much higher.
What is the equity that needs to be repaid for help to buy a London equity loan?
Help to Buy London offered up to a 40% equity deposit loan.
Was help to buy just for first-time buyers?
Help to Buy was initially launched for all home buyers of newly built property but later versions were just for first-time buyers.
Will help to buy come back?
Whilst we don’t know if help to buy will come back specifically it is likely that the UK government will incentivise the housing market to boost the economy, probably at some point in 2024 due to it being an election year.
Do you need a solicitor for help to buy mortgage?
Yes, when you remortgage, you are changing mortgage lenders and will always require a solicitor to handle the transaction.
What happens after 5 years of help to buy?
The help to buy a loan starts to accrue interest after 5 years. The interest will increase every year also.
How much does it cost to pay off help to buy?
The help to buy equity loan amount you owe will be determined by an independent RICS surveyor who will value your property. The amount you owe will be a percentage of the property valuation. There is also a £200 admin fee to repay the loan.
Can you rent out a help to buy property after 5 years?
It is NOT possible to rent out help to buy property after 5 years or at all. Help to buy loans were for a home buyer’s main residence only.
Can I Airbnb my help to buy property?
It is not possible to rent out help to buy property, either on a short-term let basis or on an assured short-term basis. A help-to-buy property is secured on a home buyer’s main residence only.
Can I buy a second home if I have help to buy?
You can not buy a second home if you have an existing help to buy a loan. You will need to repay your help to buy an equity loan by remortgageing or selling the property. Once your help to buy an equity loan has been repaid you can then purchase a second home.