Help-to-Buy has been assisting first time buyers getting onto the property ladder since 2013. The government funded scheme incentivises the building of new homes by making them more accessible to buyers, which in-turn creates an increased demand. From a buyer’s perspective, the Help-to-Buy equity loan allows you to purchase with just a 5% deposit and it eases mortgage affordability. The equity loan covers 20% of the property value (40% in London), meaning the mortgage is only required on 75% of the property value (55% in London).
Formerly available to existing homeowners, the scheme has been exclusively available to first time buyers since April 2021. The equity loan works very differently to a normal loan. The Help-to-Buy stake in your property is not a fixed sum, but a fixed percentage of the property value. The equity loan is interest free for the first 5 years before progressively increasing. Therefore, it is after this time that most people look to get rid of Help-to-Buy.
So how do you go about removing your Help-to-Buy Equity Loan?
A RICS surveyor is firstly required to determine the current value of the property as this dictates the amount owed to Help-to-Buy. While your property increasing in value means you’ll owe more to Help-to-Buy, this is still the desirable outcome as it will ultimately leave you with more equity in the property than if it had decreased in value and you owed less to Help-to-Buy.
For those selling their home and moving in sync with removing the equity loan, the process is a little simpler. The equity loan can be redeemed from the proceeds of the sale and you will have your remaining equity plus any other funds as a deposit for your next property.
For those looking to remortgage to remove the equity loan, this is typically done by increasing the mortgage balance as part of a remortgage to cover the amount owed to Help-to-Buy. Alternatively, if you have savings or other funds, these can also be used to cover the shortfall created by redeeming the equity loan. Increasing the mortgage balance requires new affordability calculations to be run so it is important to ensure your income will allow you to do this otherwise you will not be able to redeem the Help-to-Buy equity loan. After the first 5 years, interest is charged at 1.75% for the next year and then increases by RPI plus 1% for each subsequent year.
Discussing the process of redeeming your Help-to-Buy with a mortgage broker like ourselves is highly recommended – well in advance of when you’re looking to do so. This allows you to check you’ll be able to increase your mortgage balance if required. If you wouldn’t be able to do this in your current financial circumstances, it gives you time to make any possible adjustments to allow you to do so.
While the Help-to-Buy scheme is coming to an end in March 2023, there will be thousands of homeowners looking to remortgage to remove the equity loan for many years to come after this. If you’re considering purchasing a new-build home and would like some advice on Help-to-Buy then feel free to get in touch for free, professional advice.