If you want to remortgage and are on the Help to Buy scheme (which is no longer open for new applications), you may hit a few stumbling blocks.
We’ll cover the main challenges you can expect, and how to overcome them.
The Help to Buy government loan scheme was launched in 2013 to help first-time buyers get on the property ladder.
You can no longer apply to the scheme, except in Wales. New applications closed on 31 October 2022, and any property purchases must have been completed by 31 March 2023.
You can no longer apply to the Help to Buy scheme, except in Wales
Once your initial Help to Buy mortgage deal ends you can remortgage
There are a few options available if you haven’t yet paid off the equity loan
Speak to a mortgage broker six months before your deal ends to help make your remortgage application successful
How the Help to Buy scheme works
With a 20% government loan (or up to 40% if you’re purchasing a home in London), buyers could take out a 75% mortgage and apply for a 5% deposit, making it easier to get on the property ladder.
Applicants would have a pay a £1 a month management fee until the loan is paid off.
When the scheme was open for applications, not many lenders offered this type of mortgage.
There are also a number of legal hoops to jump through if you’re looking to remortgage.
Can I remortgage on Help to Buy?
Once your initial Help to Buy mortgage deal ends, which is usually a fixed rate for between two and five years, you can remortgage.
However, if you don’t find a new deal, you’ll be switched to the lender’s standard variable rate (SVR), which is usually a lot more expensive.
As with all remortgages, lenders will calculate your new interest rate and monthly repayments based on your loan-to-value ratio (LTV).
A broker can help you calculate this and guide you through the eligibility criteria of different lenders.
Can I remortgage to pay off the Help to Buy equity loan?
The other key question you face with a Help to Buy remortgage is how to handle the government loan. Once you’ve owned the property for five years, you’ll start paying interest on that loan.
In your sixth year of having the loan, you’ll pay 1.75% interest, which applies to the equity loan amount you originally borrowed.
But then the interest rate increases annually every April by Consumer Price Index (CPI), plus 2%.
If you bought your home via this scheme between 2013 and 2021, the interest rate increases by adding the Retail Price Index, plus 1%.
Due to the additional borrowing risk, as well as the cost to you, many lenders will only accept you if you’ve paid off the equity loan in full before you remortgage.
However, you have a few options if you haven’t yet paid off the equity loan.
While mortgage deals are harder to find, a mortgage broker can help you access them.
Here’s a quick run-through of your options.
Keep the full loan
You may be able to take out a new deal with your current lender or a new one, but your choices will be limited and the fees can be high.
The other downside is that you’ll still have the 20% loan to pay back when you come to sell.
As it’s based on the property value, the amount will be higher if the property value has gone up.
Staircase (part-pay) the loan
If you can afford it, you can start paying back the equity loan in monthly repayments.
In this way, you can work towards reducing the government loan to 10% of the property value. You’ll also build up equity in the property while keeping loan repayments manageable.
Both the lender and Help to Buy scheme administrator will use an independent property valuation to calculate your repayment options.
Remortgage to repay the loan in full
It is possible to add the government loan to your property loan and remortgage to repay the full amount.
This option removes the need to pay back the equity loan when you come to sell, meaning you’ll get 100% of any increase in property value.
You can normally do this only if the value of your property has gone up, as remortgaging will allow you to release equity you’ve built up to pay off the equity loan.
You also need to ensure you can still afford the higher monthly repayments.
Can I borrow more money when I remortgage?
You may be able to borrow more money when you remortgage if you:
Pay back either part or all of your equity loan.
Plan to make structural alterations with permission.
Intend to fund a transfer of equity, so you can change from joint to sole (or vice versa) ownership of a property.
You also may be able to borrow more money to clear leasehold or mortgage arrears, but any requests need to be approved.
If you want to borrow more money with a new lender, contact the Help to Buy customer service team at 0300 123 4123.
Make sure you have all the evidence you need, which you can find here.
You’ll need to decide how much of the equity loan you want to repay, complete and send an application form and documents, as well as pay an administration fee.
If your application is successful, you have to remortgage within six months.
Do many lenders offer remortgages for Help to Buy?
There aren’t a huge number of loans on the market for Help to Buy remortgages, especially if you’ve got the equity loan to repay.
As you essentially have two loans on the property, you’re a riskier borrower for many lenders. So, deals are typically more expensive than for normal remortgages in terms of interest rates and fees.
That said, it may still be cheaper to remortgage than to stay on your lender’s SVR.
Before agreeing to remortgage with a lender, make sure you have a full breakdown of any fees.â¯
How do I get the best Help to Buy remortgage deals?
Timing is vital when it comes to getting the best remortgaging deal, especially as rates are higher now compared to a few years ago.
It really helps if your property has increased in value, as you can use the equity you’ve built up as bargaining power.
Saving up will further improve your prospects, as being able to add a lump sum will decrease your LTV ratio. Extending your mortgage term may also be an option.
Most importantly, talk to a mortgage broker who can access all available deals on the market.
What are my remortgaging options if I’m in negative equity?
If your house has sharply decreased in value, your options will be limited and you won’t be able to increase the amount you borrow.
Negative equity means that your home’s resale value wouldn’t be enough to repay the outstanding balance of your current mortgage.
Your only realistic option in this case is to wait it out on the SVR until property prices rise again.
Where to start with a Help to Buy remortgage
Speak to a mortgage broker six months before your Help to Buy mortgage deal ends. They’ll help you through the process and help make your remortgage application successful the first time.
If you found this article useful, you might also find our article on how to buy someone out of a house informative, too.