Help to Buy remortgage
Explore the ins and outs of a Help to Buy remortgage with our comprehensive guide.
Discover options, benefits, pitfalls, and get expert advice.
A Help to Buy remortgage can be a significant decision with a host of financial implications. It provides a means for homeowners to switch their current mortgage deal, possibly to obtain better interest rates, different repayment terms, or to pay off the Help to Buy equity loan in part or full.
This article will delve into various aspects of Help to Buy remortgages, such as the qualifications, the process, potential benefits and pitfalls, the role of financial advisors, and many other related topics. Our goal is to provide valuable insights and guidance to help you make an informed decision about your next steps in the property ownership journey.
A Help to Buy remortgage is the process of switching your mortgage on a property you purchased through the UK’s Help to Buy Equity Loan Scheme.
The Help to Buy Equity Loan Scheme was launched in 2013 by the UK government to help first-time homebuyers afford a home. Under the scheme, the government provides an equity loan of up to 20% (or up to 40% in London) of the cost of a newly built home. The buyer then needs a 5% deposit and a 75% (or 55% in London) mortgage to make up the rest.
However, after the first five years of owning the property, the equity loan starts accruing interest, and many homeowners decide to remortgage their property at this point. Remortgaging means switching your current mortgage to a new one. This can be with the same or a different lender.
A Help to Buy remortgage can be used to repay the equity loan in part or full, or it could be used to get a better interest rate on the mortgage. This process can be more complex than a typical remortgage because of the involvement of the government equity loan. It’s advised that homeowners get in touch with a mortgage advisor to understand their options.
Remortgaging your Help to Buy property involves several steps. Here’s a general guide on how you can do it:
Understand your financial situation: Before starting the process, evaluate your current financial situation. This includes understanding your current mortgage, the amount you owe on your Help to Buy loan, and your ability to make repayments.
Get your property valued: In order to remortgage, you will need to know the current value of your property. This will determine how much you can borrow and whether you have sufficient equity to repay the Help to Buy loan. It’s often necessary to have an independent valuer approved by Target (the company that administers the Help to Buy loan) to carry out the valuation.
Contact your Help to Buy agent: Notify them of your intention to remortgage. They will provide you with important information and documentation that you need to proceed.
Consult a mortgage advisor or broker: Given the complexity of remortgaging a Help to Buy property, professional advice is often beneficial. A mortgage advisor or broker can help you find a lender and a mortgage product that suits your needs.
Apply for a remortgage: Once you have chosen a lender and a mortgage product, you can apply for the remortgage. This process is similar to applying for a mortgage and will involve providing evidence of your income, expenditure, and overall financial status.
Repay the Help to Buy loan (if you plan to do so): If your remortgage is to repay your Help to Buy loan, you can do so once the remortgage is approved. You can also choose to repay only part of the loan.
Legal process: Once your remortgage is approved, there will be a legal process to transfer the mortgage from your old lender to the new one. This is typically handled by a solicitor or conveyancer.
Completion: After the legal process is complete, your new mortgage will come into effect, and you will start making repayments according to the terms of your new mortgage.
The Help to Buy scheme is a government initiative in the UK aimed at helping first-time homebuyers and existing homeowners purchase a home with as little as a 5% deposit.
There have been several variations of the Help to Buy scheme since its inception in 2013:
Help to Buy: Equity Loan: With an equity loan, the government lends you up to 20% of the cost of a newly-built home (40% in London), so you only need a 5% cash deposit and a 75% mortgage to make up the rest. You won’t be charged interest on the 20% loan for the first five years of owning your home. However, from the sixth year, you’ll be charged interest at 1.75%, rising each year by the increase (if any) in the Retail Price Index (RPI) plus 1%. It is no longer possible to apply for a Help to Buy: Equity Loan for properties located in England.
Help to Buy: Shared Ownership: Under a shared ownership scheme, you buy a share of your home (between 25% and 75%) and pay rent on the remaining share. You can buy bigger shares when you can afford to
Help to Buy: Mortgage Guarantee: It was designed to encourage banks and building societies to lend more mortgages of up to 95% of the purchase price by offering a government guarantee to the lender. The Mortgage Guarantee Scheme is scheduled to end by the end of December 2023.
Help to Build: In England, people who want to build their own homes can apply for Help to Build, a government equity loan. Whether you’re a first-time builder or have experience, custom build and self-build homes are options available to you. The equity loan can be anywhere from 5% to 20% of the total estimated cost, and up to 40% if you’re building in London. As long as you meet the eligibility criteria, you can use up to £600,000 for your new home. This includes the cost of the land if you don’t own it, but no more than £400,000 for the actual construction.
Remortgaging a Help to Buy property can be a bit more complex than a standard remortgage due to the involvement of the government equity loan. Here is a general breakdown of how the process works:
Getting Your Property Valued: To remortgage, you’ll need to know the current market value of your property. This is crucial as it determines how much you can borrow and how much equity you have in the property. This will usually involve getting a professional valuation.
Deciding to Repay the Equity Loan or Not: One of the main reasons people remortgage a Help to Buy property is to repay the equity loan. After 5 years, you start to pay interest on the loan, which can make your overall housing costs more expensive. You can choose to remortgage to repay part or all of the equity loan. If you’re not repaying the loan, you’ll need to check with your new mortgage lender if they allow a second charge on the property, as the equity loan is registered as a second charge.
Finding a Mortgage Lender: Some mortgage lenders may not offer remortgage options for Help to Buy properties, or they may have specific requirements. You might need to shop around or use a mortgage broker to find a suitable deal.
Applying for the Remortgage: Once you’ve found a suitable lender and deal, you’ll need to apply for the remortgage. This will involve credit checks and affordability assessments, similar to your first mortgage application.
Legal Process: If your application is approved, there will be a legal process to transfer the mortgage from your old lender to the new one. This will usually be handled by a solicitor or conveyancer.
Completion: Once all the legal work is complete, your remortgage will be finalised. If you’re repaying the equity loan, the funds from the remortgage will be used to do this. You’ll then start making repayments on your new mortgage.
Yes, you can remortgage a property purchased under the Help to Buy scheme. However, there are certain factors and processes that you must consider:
Equity loan repayment: If you’ve used the Help to Buy Equity Loan scheme, the equity loan can be repaid during the remortgage process, either partially (in chunks of at least 10%) or in full. After five years, interest will be charged on the loan, so many people choose to remortgage at this point to repay the loan and avoid these charges.
Property valuation: When you choose to remortgage, you will need to have your property independently valued. This valuation will be used to calculate the amount that you owe on the equity loan, as the loan is for a percentage of the property’s value, not a fixed amount.
Finding a lender: Not all lenders will offer remortgage options for Help to Buy properties, especially if the equity loan will still be in place after the remortgage. Therefore, you might need to shop around or use a mortgage broker to find a suitable deal.
Affordability checks: As with any mortgage, you will need to pass affordability checks for a remortgage. The lender will assess your income and outgoings to ensure that you can afford the repayments on the new mortgage.
The maximum amount you can borrow on a Help to Buy remortgage depends on several factors, including:
Your income: As with any mortgage, lenders typically limit how much you can borrow based on your income. It’s common for lenders to offer around 4 to 4.5 times your annual income, but this can vary depending on the lender’s criteria and your personal circumstances.
Affordability checks: Lenders will also conduct affordability checks. These take into account your income and outgoings (like bills, debts, and living costs) to work out how much you could afford to repay each month. The results of these checks will impact how much the lender is willing to offer you.
Property value: The value of your property also plays a significant role in determining how much you can borrow. If your property has appreciated in value, you may have more equity, which could allow you to borrow more.
Help to Buy Equity loan: If you have a Help to Buy Equity Loan, the amount of the loan still outstanding will be factored into how much you can borrow. Some people choose to use the remortgage to pay off the equity loan, either partially or fully.
Credit score: A higher credit score can sometimes influence lenders to offer you a higher amount, as it indicates that you’re a lower-risk borrower.
It’s important to remember that the amount you can borrow should be balanced with what you can afford to repay. Overstretching your budget could lead to financial difficulties down the line. You should consider seeking advice from a mortgage advisor or broker to understand how much you can borrow based on your individual circumstances.
There are several potential benefits to a Help to Buy remortgage:
Paying off the Equity Loan: One of the main reasons homeowners choose to remortgage is to pay off the Help to Buy equity loan. After the first five years, this loan starts accruing interest, which can significantly increase your monthly payments. By remortgaging, you can pay off all or part of this loan to reduce or eliminate these additional charges.
Lower interest rates: Remortgaging can allow you to switch to a mortgage with a lower interest rate, which could save you money over the long term. This will depend on your current mortgage rate and the rates available in the market at the time of remortgaging.
Changing mortgage type: Remortgaging can also provide the opportunity to change the type of your mortgage. For instance, you might switch from a variable-rate mortgage to a fixed-rate mortgage to have more certainty over your future repayments.
Releasing equity: If your home has increased in value, remortgaging can allow you to release some of the equity in your property. This could be used for home improvements, consolidating debts, or other significant expenses.
More affordable monthly payments: If you’re able to extend the term of your mortgage, remortgaging could result in more affordable monthly payments. However, it’s important to remember that extending the term of your mortgage could result in paying more interest overall.
As with any financial decision, it’s important to carefully consider your options and seek professional advice. The right choice will depend on your individual circumstances and financial goals. It’s also important to remember that remortgaging can involve costs, such as valuation fees, legal fees, and potentially early repayment charges on your existing mortgage.
While a Help to Buy remortgage can have several benefits, there are also potential pitfalls that you should be aware of:
Early repayment charges: If you remortgage during the term of your current mortgage deal, you might have to pay early repayment charges. These can be a significant cost, so it’s crucial to check your current mortgage agreement for any penalties that might apply.
Remortgage fees: Remortgaging can involve various fees, such as legal fees, valuation fees, and arrangement fees for the new mortgage. These can add up and should be factored into your decision.
Affordability assessment: As part of the remortgage application, you’ll need to go through another affordability assessment. If your circumstances have changed (e.g., decreased income, increased outgoings, or changes in credit status), it might affect your eligibility or the amount you can borrow.
Help to Buy equity loan repayment: If you’re remortgaging to repay the Help to Buy equity loan, remember that the loan amount is linked to the property’s value, not the amount you initially borrowed. If the value of your property has increased significantly, you might have to repay more than you anticipated.
Loan to value (LTV) ratio: If your property’s value hasn’t increased much since you bought it, or if it has decreased, you might find yourself in a higher loan-to-value bracket when you come to remortgage. This could mean higher interest rates and fewer choices of lenders.
Extension of mortgage term: While extending the term of your mortgage can reduce your monthly payments, it also means that you’ll be paying the loan off over a longer period, which can result in paying more in interest over the long term.
The Help to Buy scheme in London works similarly to the rest of the UK, but with one key difference – the government’s equity loan is larger.
Under the Help to Buy: Equity Loan scheme, the UK government lends first-time buyers up to 20% of the cost of a newly built home. However, recognising that property prices are significantly higher in London, the government increased the loan for buyers in London to up to 40% of the property price.
Here’s a quick breakdown of how it works:
Deposit: You need to contribute a minimum of 5% of the property price as a deposit.
Government Equity Loan: The government provides an equity loan of up to 40% of the property price. This loan is interest-free for the first five years.
Mortgage: The remainder of the property price (up to 55%) is covered by a traditional mortgage from a commercial lender.
This scheme is designed to make buying a home more affordable for first-time buyers in London, where property prices are generally higher than in the rest of the UK. However, just like the standard Help to Buy scheme, it’s only applicable to newly built properties from participating house builders, and there are price caps in place.
As always, it’s important to fully understand the terms of the Help to Buy scheme before proceeding. After the first five years, the government equity loan will start to incur interest, and the loan amount must be repaid when you sell the home or at the end of the mortgage period. This could impact your ability to sell or remortgage in the future. For this reason, prospective buyers should consider getting independent financial advice.
Remortgaging a Help to Buy property can be more complex than a standard remortgage due to the involvement of the government equity loan. Here are some of the reasons why it might be perceived as more difficult:
Equity loan repayment: The Help to Buy equity loan needs to be repaid either when you sell the property, at the end of the mortgage term, or when you remortgage, whichever comes first. If you are remortgaging, you’ll need to decide whether to repay part or all of the equity loan. If you are not repaying the equity loan during the remortgage, you will need to find a lender that allows a second charge on the property, as the equity loan is a second charge.
Limited lender options: Not all mortgage lenders offer remortgage options for Help to Buy properties. Some will only remortgage a Help to Buy property if the equity loan is being repaid in full. This can limit your options and make it harder to find a suitable deal.
Valuation and loan amount: The equity loan is a percentage of the property’s value rather than a fixed amount. When you come to remortgage, the property will need to be revalued, and the amount you owe on the equity loan will be recalculated based on this new valuation. This can make the process more complex and potentially more expensive if your property has increased in value.
Additional legal steps: There are additional legal steps involved in remortgaging a Help to Buy property, especially if you are repaying the equity loan. This can make the process take longer and potentially cost more in legal fees.
Despite these challenges, many homeowners successfully remortgage Help to Buy properties every year. It’s crucial to seek advice from a mortgage advisor or broker who has experience with Help to Buy remortgages. They can guide you through the process, help you understand your options, and potentially find a better deal for you.
Yes, you can remortgage to pay off the Help to Buy equity loan. In fact, many homeowners choose to do this, especially as the interest-free period on the equity loan comes to an end after five years. From this point, you will be required to pay an interest fee on the outstanding loan amount, which increases annually, so it can be financially advantageous to pay off the loan if you’re able to do so.
When remortgaging to pay off the equity loan, here are some things to consider:
Valuation: The Help to Buy equity loan is a percentage of your property’s value, not a fixed amount. Therefore, if you decide to repay the loan, you’ll need to get your property independently valued. The amount you’ll need to repay will be based on this valuation, not on the price you originally paid for the property.
New mortgage amount: If you’re borrowing more on your new mortgage to repay the equity loan, you’ll need to make sure you can afford the potentially higher monthly repayments. This will also be subject to affordability checks by the lender.
Lender options: Not all mortgage lenders offer remortgage products that allow you to repay a Help to Buy equity loan, so your options might be more limited. Using a mortgage broker could help you find lenders and compare the deals available.
Fees and charges: Remortgaging can involve various fees such as valuation fees, legal fees, and arrangement fees for the new mortgage. It’s also worth checking whether there are any early repayment charges on your current mortgage.
As always, it’s important to get independent financial advice before making a decision to ensure that it’s the right move for your individual circumstances and financial goals.
Remortgaging a Help to Buy property can be a vital step for homeowners for several reasons:
Avoiding Equity Loan Interest: The Help to Buy equity loan is interest-free for the first five years. After this period, the homeowner must start paying interest on the loan. This starts at 1.75% and rises each year by the increase (if any) in the Retail Prices Index (RPI) plus 1%. Remortgaging can help homeowners pay off the equity loan, potentially saving them significant amounts of money over the long term.
Taking advantage of property price increases: If the property has increased in value, homeowners could remortgage to release some of the equity they’ve built up. This could be used for various purposes, such as home improvements or to pay off other debts.
Reducing monthly payments: By remortgaging, homeowners might be able to reduce their monthly mortgage payments, either by securing a lower interest rate or by extending the mortgage term. This could free up more of their monthly income for other expenses.
Switching mortgage products: Homeowners may want to switch from a variable-rate to a fixed-rate mortgage or vice versa. Remortgaging provides an opportunity to do this.
Greater Financial Flexibility: Paying off the equity loan can provide greater financial flexibility. Homeowners will only have their mortgage lender to repay, and they’ll own a larger share of their property.
While there are numerous potential benefits to remortgaging a Help to Buy property, it’s also important to consider the potential drawbacks and costs, such as early repayment charges and remortgage fees. It’s always recommended to seek independent financial advice before making a decision to remortgage.
If you decide to keep the full Help to Buy equity loan when remortgaging, there are a few things you need to consider:
Lender options: Not all lenders will offer remortgage products for Help to Buy properties where the equity loan is not being repaid. This is because the government’s equity loan is a second charge on the property, which can increase the lender’s risk. Therefore, your choice of lenders may be more limited.
Interest payments: The Help to Buy equity loan is interest-free for the first five years. After this period, you’ll start paying interest on the loan. This starts at 1.75% and rises each year by the increase (if any) in the Retail Prices Index (RPI) plus 1%. You’ll need to factor these payments into your budget.
Future sale of the property: If you decide to sell your home in the future, the equity loan will need to be repaid at that point. The amount you’ll need to repay is a percentage of the property’s value at the time of sale (equal to the initial loan percentage), not the original loan amount. Therefore, if your property has increased in value, the amount you’ll need to repay could be significantly more than the amount you borrowed.
Remortgage affordability: Even if you’re not repaying the equity loan, you’ll still need to pass the lender’s affordability checks for the new mortgage. The lender will consider your income, outgoings, and credit score, among other factors, to determine how much they’re willing to lend you.
Keeping the full Help to Buy loan when remortgaging can be a good option in some cases, especially if you’re not ready or able to repay the loan yet. However, it’s important to understand the implications and costs associated with this decision. It’s always recommended to seek independent financial advice before making a decision to remortgage.
“Staircasing” is a term often used in the context of shared ownership schemes, where it refers to the process of buying additional shares in your property over time. However, the term can also be applied to the Help to Buy scheme to describe the process of partially repaying the government equity loan.
In the Help to Buy context, staircasing allows you to pay off part of the equity loan, thereby reducing the amount of interest you will have to pay once the interest-free period ends after the first five years. You could do this when remortgaging, or at any other time.
Here are a few things to note if you’re considering staircasing your Help to Buy equity loan:
Minimum amount: Under the Help to Buy scheme rules, you can only staircase in 10% increments of the property’s current value. So each time you staircase, you must pay off a minimum of 10% of the home’s current value.
Valuation: To staircase, you’ll need to get your property independently valued, as the amount you’ll repay is based on the current property value, not the price you originally paid for the property.
Fees: You might need to pay fees for the valuation and legal costs associated with staircasing, as well as any fees associated with remortgaging.
Affordability: You’ll need to ensure you can afford the additional borrowing required to staircase. The mortgage lender will also assess your ability to afford the higher repayments.
Future interest savings: By reducing the amount of the equity loan, you’ll reduce the amount of interest you have to pay once the interest-free period ends. This could result in significant savings over the long term.
Ownership stake: Staircasing increases the percentage of the property that you own outright, which could be beneficial when you come to sell the property.
Staircasing can be a good option if you can’t afford to repay the entire equity loan but want to reduce your future interest payments and increase your ownership stake. However, it’s always recommended to seek independent financial advice before making a decision to ensure that it’s the right move for your individual circumstances and financial goals.
You can choose to remortgage to repay the Help to Buy equity loan in full. In doing so, you’re essentially taking out a new mortgage that is large enough to pay off your existing mortgage and the outstanding equity loan. This could be a viable option, particularly if the 5-year interest-free period on the Help to Buy loan is coming to an end. Here are a few factors to consider:
Lender options: Some lenders offer specific remortgage options for Help to Buy properties, but not all do. Some may only allow this if you’re repaying the full equity loan. A mortgage broker can help you explore your options.
Property valuation: To calculate how much you owe for the equity loan, you’ll need to have your property valued. The repayment amount for the equity loan is based on the property’s current value, not the amount you initially borrowed.
New mortgage amount: If you’re borrowing more to repay the equity loan, you’ll need to ensure you can afford the increased mortgage repayments. The lender will also conduct affordability checks to make sure you can manage the higher loan amount.
Costs and fees: Remortgaging involves certain costs such as valuation fees, legal fees, and possibly early repayment charges on your current mortgage. Make sure to factor these into your calculations.
Equity: If you repay the Help to Buy loan in full, you’ll own 100% of the equity in your home (assuming you don’t take out any other loans secured on the property). This could give you more flexibility in the future, for example, if you want to sell or remortgage again.
Long-term savings: By repaying the equity loan, you’ll avoid the interest fees that kick in after the first five years. This could potentially save you a significant amount over the long term.
With the Help to Buy Equity Loan scheme, the UK Government lends you up to 20% of the cost of your newly built home (or up to 40% if you’re in London). For the first five years, this equity loan is interest-free. After the initial five years, the following interest rates apply:
Year 6: You’re charged a fee of 1.75% of the loan’s value.
Year 7 and onwards: After this, the fee will increase each year. The increase is calculated using the Retail Prices Index (RPI) plus 1%. This means if the RPI is 3%, your fee would increase by 4% (3% + 1%).
Remember, these are not interest rates in the traditional sense but rather the fees you pay for the loan after the first five years. The actual equity loan itself, the 20% or 40% of the home’s value that you borrowed, will also need to be repaid. This is typically done when the home is sold or at the end of the mortgage period, whichever comes first.
It’s also worth noting that the amount you will repay for the equity loan could be more or less than what you borrowed, depending on whether your home has risen or fallen in value. The loan is for a fixed percentage of the property’s value, so if the property value goes up, so does the amount you owe on the loan.
As always, it’s important to fully understand the terms and conditions of any loan before you agree to it. If you’re unsure about anything, it can be helpful to get independent financial advice.
Yes, many UK mortgage lenders offer remortgage options specifically designed for homeowners looking to repay their Help to Buy equity loan. However, not all lenders offered these products, and the terms, conditions, and rates could vary significantly between those that did.
Lenders who offer Help to Buy remortgages typically consider applications both from those looking to remortgage their existing Help to Buy mortgage and those looking to move onto a Help to Buy mortgage from a different type of mortgage.
Many lenders in the UK offer remortgage options for customers with Help to Buy equity loans. Here are some of the major banks and building societies that have been known to offer such products:
However, please note that the specific offerings of each bank or building society can change over time based on various factors such as the economy, the housing market, or changes in government schemes.
Getting the best Help to Buy remortgage deal involves several steps:
Check Your Credit Score: Lenders use your credit score to decide whether to lend to you and what interest rate to offer. Make sure your credit report is accurate, and take steps to improve your score if necessary.
Shop Around: Don’t just go with your current lender without looking at what others have to offer. Different lenders may offer better interest rates or terms, so it’s worthwhile to compare.
Consider Using a Mortgage Broker: Mortgage brokers have expert knowledge of the market and can often find deals that you may not be able to find on your own. Some brokers may have access to exclusive deals that aren’t available to the general public.
Decide What Type of Mortgage is Right for You: There are different types of mortgages available, including fixed-rate, variable-rate, and tracker mortgages. Consider your personal financial situation and your risk tolerance when deciding which type is right for you.
Understand the Fees: Make sure you understand all the fees involved in remortgaging, including valuation fees, legal fees, and any early repayment charges on your current mortgage. These can add up and make a seemingly good deal less attractive.
Prepare Financially: The better your financial situation, the more likely you are to get a good deal. This can mean saving up a larger deposit, reducing your debt, and ensuring you have a steady income.
Negotiate: Don’t be afraid to negotiate with lenders. If you’ve found a better deal elsewhere, your current lender might be willing to match it to keep your business.
While remortgaging a Help to Buy property can be a way to repay the equity loan or find a better mortgage deal, it can also come with several challenges and potential issues:
Equity loan repayment: The Help to Buy equity loan is interest-free for the first five years, but after this period, you’ll have to start paying interest fees if you haven’t repaid the loan. This can push up your monthly costs.
Loan-to-value (LTV): To remortgage, you may need a sufficient amount of equity in your property. If property prices have not risen significantly or have fallen since you bought your home, this may affect your LTV ratio and limit your remortgage options.
Property valuation: To repay the equity loan (either in full or partially), you’ll need to have your property valued. The repayment amount is based on the current value of your home, not the original price you paid. So, if the property value has increased, you could end up owing more than you anticipated.
Affordability: If you plan to increase your mortgage to repay the equity loan, you’ll need to ensure you can afford the higher monthly payments. Lenders will also check your income and outgoings to ensure you can afford the larger loan.
Lender restrictions: Not all lenders offer Help to Buy remortgages, and those that do may have specific criteria or restrictions. For example, some lenders might not offer remortgaging if you’re planning to partially repay the equity loan (known as “staircasing”).
Fees and costs: Remortgaging comes with several costs, such as valuation fees, legal fees, and potentially an early repayment charge on your current mortgage. These costs could add up and should be factored into your decision.
Here is how you can do a Help to Buy remortgage comparison:
Look at interest rates: Compare the interest rates of different remortgage products from various lenders. A lower interest rate could result in lower monthly repayments.
Check loan-to-value (LTV) ratios: The LTV ratio is the size of your mortgage in relation to the value of your property. Different remortgage deals might require different minimum or maximum LTV ratios.
Compare fees: Be sure to take into account any arrangement fees, valuation fees, legal fees, and other costs associated with the remortgage. While some deals might offer a lower interest rate, they might also come with higher fees.
Consider the mortgage type: Different deals might offer fixed-rate, tracker, or variable-rate mortgages. Fixed-rate mortgages provide certainty about your monthly repayments for a set period, while tracker or variable-rate mortgages could go up or down.
Repayment method: You’ll likely be choosing between repayment and interest-only mortgages. With a repayment mortgage, you pay back the capital and the interest each month, while with an interest-only mortgage, you only pay the interest and must find another way to repay the capital at the end of the term.
Check early repayment charges: Some mortgages have early repayment charges if you pay off your mortgage early or overpay by more than a certain amount each year.
Look at the overall cost: Consider the total cost over the term of the mortgage, not just the monthly payment or the initial interest rate. A mortgage calculator can help with this.
Seek professional advice: A mortgage broker or financial advisor can provide personalised advice based on your circumstances. They have access to the entire market and can recommend the best remortgage deals for you.
When comparing remortgage deals, it’s important to take into account your personal circumstances and financial goals. The best deal for you will depend on a variety of factors, including the size of your mortgage, the value of your property, your income, and your future plans.
If you’ve taken a Help to Buy equity loan, there are several ways you can pay it off. The method you choose may depend on your personal circumstances and financial situation:
Sale of property: The most common way to repay the Help to Buy equity loan is through the sale of your property. The loan is for a fixed percentage of the property’s value, so when the property is sold, the same percentage of the sale price is used to repay the loan.
Remortgaging: You can remortgage your home to pay off the Help to Buy equity loan. This involves taking out a new mortgage that’s large enough to pay off your existing mortgage and the equity loan. This can be a good option if property prices have risen since you bought your home or if you’re able to secure a mortgage with better terms. However, you’ll need to make sure you can afford the larger mortgage repayments.
Staircasing: This involves gradually buying out the government’s equity in your home. You can do this in increments of 10% of the property’s current value until you own the property outright. This can be a more manageable way to repay the loan, but you’ll need to pay for a property valuation each time you staircase.
Lump sum payment: If you come into a significant amount of money, for example through an inheritance or a bonus, you can use this to pay off the equity loan in one lump sum.
End of mortgage term: If you haven’t already repaid the equity loan by the time your mortgage term ends, you’ll need to pay it off at this point. This will typically involve selling your property unless you have other funds available to repay the loan.
Remember, you’ll start to be charged interest on the Help to Buy equity loan after five years, so it’s a good idea to start planning how you’ll repay it before this point. You’ll also need to consider that the amount you owe could increase if your property value rises, as the loan is based on a percentage of the property’s value.
If you choose to keep your Help to Buy equity loan and not repay it immediately, here’s what happens:
Interest-free period: For the first five years, the Help to Buy equity loan is interest-free. You don’t need to make any loan repayments during this time, although you can choose to start repaying the loan if you wish.
Interest fees after five years: After the first five years, you’ll start to be charged interest on the loan. This is called the loan fee. The interest rate starts at 1.75% and increases each year by the increase (if any) in the Retail Prices Index (RPI) plus 1%.
Equity loan repayment: The equity loan must be repaid after 25 years, or earlier if you sell your home. The amount you repay depends on the market value of your property at the time of repayment. Since the equity loan was for a fixed percentage of the property’s value, you repay the same percentage of the sale price or the current property value (if you are repaying without selling the home).
Home value changes: If the value of your home increases, the amount you owe on the equity loan increases as well since it’s a percentage of the property’s value. Conversely, if your home’s value decreases, so does the amount you owe.
If you’re looking to change your mortgage situation or repay your Help to Buy equity loan, but you’d rather not remortgage, there are a few alternatives to consider:
Staircasing: This is the process of gradually buying the government’s equity loan back in stages, or “steps”. You can purchase an additional percentage of your property, reducing the size of the loan. This requires a property valuation and can be done in 10% increments until the equity loan is fully repaid.
Lump sum repayment: If you have the funds available, you could consider repaying your Help to Buy equity loan in a lump sum without remortgaging. This might be feasible if you’ve come into a substantial amount of money, like an inheritance or a large bonus.
Selling your property: You could consider selling your property to repay the Help to Buy equity loan. The loan would be repaid from the sale proceeds. You could then consider purchasing a new property without the need for a Help to Buy equity loan.
Saving and investing: Depending on your financial situation and the amount you owe, you might consider saving or investing with the goal of eventually accumulating enough to repay the equity loan. However, this will likely take some time, and there are no guarantees with investment returns.
Making overpayments: Some mortgages allow you to make overpayments without incurring an early repayment charge. Over time, this can help you reduce your mortgage balance more quickly, which could put you in a better position to repay your equity loan in the future.
Each of these options has its own pros and cons, and the right choice depends on your personal circumstances, including your financial situation and your long-term goals.
If you’re in negative equity, which means you owe more on your mortgage than your property is currently worth, your options for remortgaging can be more limited. However, there are still some potential strategies to consider:
Stay with your current lender: Your existing lender may be able to offer a new deal even if you’re in negative equity, as they already have a relationship with you and a vested interest in helping you manage your mortgage repayments. This process is sometimes called a “product transfer” – essentially switching to a new deal with your existing lender.
Overpay your mortgage: If your mortgage terms and your financial situation allow for it, overpaying your mortgage could help you get out of negative equity more quickly. However, you’ll need to check the terms of your mortgage, as some lenders charge a fee for overpayments.
Save a repayment fund: If you can afford to do so, you could start saving money into a fund with the aim of reducing the negative equity. This could make it easier to remortgage in the future.
Pay off your Help to Buy equity loan: If the negative equity is due to a Help to Buy equity loan and you have the funds available, repaying the loan might help. This could be a complicated process, so you’d need to discuss it with your lender and potentially seek advice from a financial advisor.
Wait it out: If you can afford to keep making your mortgage payments and you’re not in a rush to move, you could wait for property prices to increase. However, this could be risky, as there’s no guarantee that property prices will rise.
Sell your property: As a last resort, you could consider selling your property. However, if you’re in negative equity, you’ll still owe the shortfall between the sale price and the mortgage amount. This would need to be discussed with your lender and may not always be possible.
If you’re in negative equity and considering remortgaging, it’s highly recommended that you speak with a financial advisor or mortgage advisor. They can provide advice based on your specific circumstances and help you understand your options.
The typical timeframe to complete a standard remortgage process in the UK ranges from 4 to 8 weeks. However, with a Help to Buy remortgage, it may take longer due to additional factors, such as:
Valuation: The property needs to be valued by a RICS surveyor as part of the process, and the surveyor’s report must be sent to the post-sale Help to Buy agent. This valuation will be used to calculate the amount needed to repay the equity loan, which is based on a percentage of the current market value of the property. Arranging and receiving the valuation can add to the timeframe.
Consent to mortgage: After you have a formal mortgage offer, your solicitor will ask the post-sale Help to Buy agent for a ‘Consent to Mortgage.’ This is essentially permission to go ahead with the remortgage, and it can take a couple of weeks to receive.
Legal work: Remortgaging involves legal work, which will be handled by a solicitor or conveyancer. The complexity of the process can vary depending on the specifics of the property and the mortgage.
Mortgage approval: The time it takes for the lender to approve the mortgage can vary. The lender will want to conduct their own property valuation, and they may also require information about your income, employment, and credit history.
In addition, any delays in submitting necessary paperwork or responding to solicitors can also extend the timeline.
Given these additional steps, a Help to Buy remortgage could potentially take anywhere from 6 to 12 weeks or possibly even longer in complex cases. Please note this is an estimated timeframe, and actual timeframes can vary widely depending on a variety of factors.
Starting the process of a Help to Buy remortgage can seem a bit daunting, but with the right preparation and approach, it can be manageable. Here are some steps you can follow:
Understand your current position: Determine how much you still owe on your mortgage and the Help to Buy equity loan. Also, try to understand the approximate current market value of your property, which will affect how much you’ll need to repay the equity loan. It’s important to know that with a Help to Buy Equity Loan, the amount you owe is tied to the value of your property and can increase or decrease based on that.
Seek financial advice: It can be helpful to engage a mortgage broker or financial advisor at this stage. They can provide advice tailored to your personal circumstances and help you understand your options.
Get a property valuation: As part of the remortgage process, you’ll need to have your property valued by a RICS surveyor. The valuation is then sent to Target, the post-sale Help to Buy agent, and it is used to calculate the repayment of the Help to Buy equity loan.
Explore mortgage offers: With your broker, review your mortgage options. You’ll want to consider factors such as interest rates, terms, and fees. Remember, you’ll need to borrow enough to repay both your original mortgage and the Help to Buy equity loan.
Apply for a mortgage: Once you’ve chosen a lender and a mortgage product, you’ll submit an application. The lender will conduct their own assessment and valuation of the property.
Obtain consent to mortgage: After you receive a formal mortgage offer, your solicitor will request a ‘Consent to Mortgage’ from the Help to Buy agent. This is essentially permission to proceed with the remortgage.
Complete the legal work: Your solicitor will carry out the necessary legal work to complete the remortgage, including repaying your existing mortgage and Help to Buy equity loan and setting up your new mortgage.
Final steps: Once all the paperwork is complete and the new mortgage is set up, you’ll start making repayments on your new mortgage. Remember, if you have repaid your Help to Buy equity loan, you will no longer owe a percentage of your property’s value to the government.
Remember that while this can be a complex process, many people successfully navigate it. It’s important to keep open lines of communication with your broker, solicitor, and lender, and to ask questions if you’re unsure about anything.
Getting professional advice is an excellent decision when considering a Help to Buy remortgage. Here’s how you can get it:
Mortgage broker: A mortgage broker can help you understand your mortgage options and find a lender and mortgage product that suit your needs. Brokers have access to a wide range of mortgage products, and they can use their expertise to negotiate with lenders on your behalf. Some brokers specialise in Help to Buy mortgages and will be well-versed in the nuances of these types of loans.
Financial advisor: A financial advisor can provide more general advice about your finances, including how a remortgage might fit into your broader financial plan. They can help you consider things like your long-term financial goals, your risk tolerance, and your current financial situation.
Solicitor or conveyancer: A solicitor or conveyancer can handle the legal aspects of the remortgage process. This includes tasks such as liaising with the Help to Buy agent, obtaining the necessary permissions, and handling the funds from the new mortgage.
Help to Buy agent: Help to Buy agents can provide information about the Help to Buy scheme and how the remortgage process works. They can’t provide personalised advice like a broker or financial advisor, but they can provide general information.
When seeking professional advice, make sure to choose a professional who is registered or accredited with a relevant professional body. For financial advisors, this is usually the Financial Conduct Authority (FCA) in the UK. For solicitors, it’s the Law Society, and for conveyancers, it’s the Council for Licensed Conveyancers.
Yes, when you remortgage a Help to Buy property, you can choose to move to a different type of mortgage. For example, you might switch from a fixed-rate mortgage to a tracker mortgage or vice versa. You might also choose to move from an interest-only mortgage to a repayment mortgage. However, the type of mortgage you can get will depend on factors such as your income, credit history, and the amount of equity you have in your property. A mortgage broker or financial advisor can help you understand your options.
If you have a co-owner for your Help to Buy property and you wish to take over the full mortgage and property ownership, it is possible through a process known as “transfer of equity”. This process would involve you remortgaging the property into your sole name, and you would need to borrow enough to buy out your co-owner’s share of the property. Note that this process can be complex and requires the approval of your mortgage lender and the Help to Buy agent. It’s recommended to seek advice from a financial advisor and a solicitor.
Qualifying for a Help to Buy remortgage involves similar criteria as with any mortgage application. Lenders will consider your income, outgoings, credit history, property value, and how much you want to borrow. In the case of a Help to Buy remortgage, you would also need to consider the Help to Buy equity loan, which is usually 20% (or up to 40% in London) of the property’s value when you first bought it. When you remortgage, you’ll need to decide whether you’re going to repay part or all of the equity loan or whether you’re going to keep it.
Yes, it is possible to remortgage a Help to Buy property with a different lender. Doing so may allow you to secure a better interest rate or more favourable terms. However, not all lenders offer remortgages for Help to Buy properties, so your options might be more limited. As with any remortgage, you should compare different lenders and consider seeking advice from a mortgage broker or financial advisor.
Yes, self-employed people can remortgage a Help to Buy property. However, if you’re self-employed, lenders may ask for additional evidence of your income. Typically, you’ll need to provide at least two years’ worth of accounts or tax returns. You might also need to provide evidence of upcoming contracts or business plans if your income is irregular. It’s recommended to seek advice from a mortgage broker or financial advisor who has experience with self-employed borrowers.
Yes, many lenders and mortgage brokers offer online applications for remortgages. However, a Help to Buy remortgage can be more complex than a standard remortgage, so it might be beneficial to speak with a mortgage broker or financial advisor first. They can help you understand your options and guide you through the process. If you decide to apply online, make sure you have all the necessary information and documents to hand, such as details about your income, outgoings, and the current value of your property.
If you bought your property using a Help to Buy equity loan, you are generally not allowed to rent out your property. The scheme is intended for owner-occupiers, not for people buying properties to rent out. This condition continues to apply even if you remortgage your property unless you have fully repaid the Help to Buy equity loan.
If you need to move out of your property – for example, because of a job relocation – and you want to rent it out, you would need to seek permission from the post-sale Help to Buy agent. They may grant permission in exceptional circumstances, but you shouldn’t assume that permission will be granted. If you’re considering this, it would be a good idea to seek advice from a solicitor or financial advisor.
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