If you bought your home using the Help to Buy scheme, the remortgage process is different than if you had bought a property without a buying scheme. Here’s how to remortgage with Help to Buy.
If you want to know whether you can remortgage? The best thing to do is to speak to a mortgage adviser. Our preferred mortgage advisers offer fee-free advice for most customers.
Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
What is Help to Buy?
Help to Buy is a government scheme which aims to help people who can’t save a big deposit get on the property ladder. It enables them to buy a new build home from a participating homebuilder with government help.
Under the scheme, you’ll need a minimum deposit of 5% of the property price. The government then lends you up to 20% of the purchase price (40% in London) – this is called an equity loan. You’ll then take out a mortgage for the remaining 75% of the property’s value.
You won’t be charged interest on the equity loan for the first five years of owning the property. You’ll need to repay the equity loan by the time you pay off your mortgage. Or when you sell the property, but you can repay the loan before this if you choose to.
Our preferred mortgage advisers can monitor your mortgage. And let you know when it’s time to switch to a new deal, so you don’t overpay.
Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Remortgage with Help to Buy: what are my options?
If you’re on Help To Buy and want to remortgage, you have four options:
- remortgage and repay all the equity loan
- remortgage and repay a proportion of the equity loan
- remortgage and keep the equity loan
- remortgage and pay off the equity loan with cash savings
Repayments of your equity loan are based on your equity loan percentage and the market value of your home at the time you want to make a repayment.
So, if your property has risen in value, you may have to pay back more money than you originally borrowed. For example, if you bought a £100,000 property with a £20,000 equity loan (20%) and the property is now worth £110,000, you’ll need to pay back £22,000 (20% of £110,000).
It’s a good idea to start looking for a new deal about 4 to 5 months before you need one. If you find a good deal, the lender can reserve it for you until your current deal ends. If you want to know whether you can remortgage the best thing to do is to get in touch with a mortgage adviser.
Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Why should I repay my Help to Buy equity loan?
Help to Buy equity loans are interest-free for five years. But after that you’ll be charged interest on the debt.
The interest rate starts at 1.75% in year six. After that it rises in line with the Retail Price Index (RPI) measure of inflation plus 1% each year.
The bigger your equity loan and the higher inflation is, the more you’ll pay in interest. This payment will make a dent in your budget so it’s best to pay off the equity loan as soon as you can.
How can I remortgage with Help to Buy and repay my equity loan?
If your home has sufficiently risen in value you can remortgage to a mainstream mortgage and repay your equity loan.
For example, say your equity loan was £20,000 (20%) of a £100,000 property, and mortgage £75,000 (with a £5,000 deposit). If your home rose in value to £150,000, you’d owe the government £30,000 (20% of £150,000). If you remortgaged for £105,000, you could pay off your £75,000 mortgage and equity loan of £30,000 (£75,000 + £30,000 = £105,000).
Some mortgage lenders will only offer remortgages to pay off Help to Buy loans up to 75% LTV. In the above example, the LTV would be 70% so it would be OK, but it would be more difficult if your property had not risen in value by so much.
Alternatively, you could remortgage and just repay part of the equity loan. This would mean paying interest on the remaining debt. When paying off part or all of your equity loan, your property’s valuation will be based on a report by a chartered surveyor. Another option is to pay off all or part of the equity loan with cash, if you have enough savings.
How can I remortgage and keep my Help to Buy equity loan?
If your home hasn’t gone up in value and you don’t have savings to use to pay off your equity loan, you can keep the loan in place when you remortgage.
You may be able to take out a new mortgage deal with your current lender or a new lender. However, your choices will be limited as the mortgage lender would need to be happy to lend with a Help to Buy loan in place, and not all lenders allow this. You’d have to repay the equity loan when you eventually sell the property.
Can I pay off my Help to Buy equity loan with cash?
If you’ve got cash savings, you can settle your equity loan whenever you like. You might be in this situation if you save enough money, receive an inheritance, or are paid a bonus at work.
Always remember: Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Last Updated: December 15th, 2022
