How to Remortgage a Help to Buy Equity Loan

Wed 29 Mar 2017 by Ellie Pierpoint

Many people want to cut their loan amounts and remortgaging seems a smart way to do it, but when you have a Help to Buy loan, everything works a little differently and you might need some solid advice to get the best deal.

So what is Help to Buy:

The Help to Buy scheme is a government funded equity loan designed to help first time buyers get onto the housing ladder. It allows homebuyers to purchase a property worth up to £600,000, with just a 5% deposit. The government loans the buyer another 20% on top of their 5%, bringing their deposit up to 25% and giving them access to a better range of low interest rate mortgages.

How do Help to Buy repayments work?

The buyer then has five years of paying no interest for the Help to Buy Loan (they still pay their mortgage payments) before the interest rises to 1.75%, climbing at a rate of 1% and rising with the value of the property and current inflation. You can repay 10% or 20% of your equity loan at any point without penalty charges, which is recommended, because if you sell the property before you’ve paid back the loan, the government will take back their 20% stake, which could be much higher than the original amount if your house value has risen.

Paying off an equity loan with a remortgage:

Some people feel uncomfortable having loans hanging over their heads, and one of the more common questions we hear from customers is whether or not they can reduce their equity loan amount through remortgaging. Paying off any debt when you have the money is always a good idea, but there are a few stipulations surrounding paying off the equity on your Help to Buy loan.

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Restrictions of remortgaging an equity loan:

First of all, you should know that when you remortgage your home, you will have to pay for the valuation and legal costs. This could equal a large amount of money on top of the several thousand you need to pay off the minimum amount of 10%. Most people decide to remortgage to get a better deal on interest rates or to release some equity tied up in the house, but with a Help to Buy loan, many banks have even more restrictions. So far the only banks that offer remortgaging with a Help to Buy loan are Halifax, Lloyds Bank, Barclays and Leeds Building Society. These four banks all have different rates and will also require that you’ve built up at least 10% of equity so far, not including the deposit you were lent initially.

Are there any disadvantages to paying off Help to Buy loans?

Aside from the points already mentioned, you should take into consideration that the Help to Buy loan is interest free for five years, so it might seem like a good idea to sit back and not pay anything back during these five years, but actually now is the best time to pay off as much as you can while there is no interest on the amount. But often this is better done by just saving a little more each month and upping your payments slightly, but if you’ve got your heart set on remortgaging it would help to do a little maths as this won’t be a good idea for everyone.

So what would be a better idea than remortgaging?

It might be more beneficial to use the money to pay off some of your actual mortgage, rather than the Help to Buy loan, particularly in the first five interest free years. For example, if you’re paying 4% interest on your mortgage and are still within the first five years of your Help to Buy loan, it would save you more money to pay off some of your mortgage, as it will take approximately eight years to reach this same 4% interest rate on the Help to Buy loan, giving you eight years to save some more money for that time. Add in the legal costs of setting all of this up, and it might make more sense to leave the equity loan be for a while and focus on the areas that are costing you the most right now, but again, it’s all dependant on your specific situations so the best thing to do is talk it over with someone who is experienced in this area – why not give us a call and see if we can help? To find out more about remortgaging a Help to Buy loan, call our expert team on 0800 038 6699.

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