As the fifth anniversary of the Help to Buy Equity Loan scheme approaches, borrowers who used the government backed programme for the first time buyers will have to consider their options and make some tough financial decisions.
Let’s look at the facts:
· The amount due to be repaid is based on the current market value of the property, this means that in majority of the cases you will pay back more that you have originally borrowed.
· Each payment of the loan must also be a minimum of 10 per cent of the current market value.
· You can never be in negative equity with an equity loan. If the house price goes down, then the value of the equity loan goes down as well.
· There are many lenders who are willing to receive remortgage applications if you are raising additional funds to pay off the equity loan.
· The interest on the government loan is 1.75 per cent. This rate slowly increases year-on-year in line with the Retail Price Index plus 1 per cent. Buyers who can repay the loan within the first five years will not have to pay interest.
So, what are the options available to Help to Buy borrowers?
1. Keep the equity loan – this will most likely involve remortgaging or switching product to another fixed rate with your current provider. You will need to prepare to start making loan repayments on the 5th anniversary of your purchase.
2. Remortgage your property, raising capital from existing equity to repay your loan, in full if possible. There are many lenders on the market accepting applications from the Help to Buy borrowers wishing to repay their loan, subject to affordability and personal circumstances.
3. Selling your property and repaying the existing loan from the proceeds of the sale. Your solicitor will deal with the final loan repayment.
Today’s (19/06/2018) rate of external remortgaging with the equity loan repayment is relatively low, for example an 80% Loan to Value mortgage products can start from 1.64% on a 2-year fixed rate basis, with free valuation. This combined with the mortgage offers being valid for 6 months means that the HTB borrowers could start arranging their potential repayment as early as 6 -7 months in advance of their 5th Help to Buy anniversary.
It is important that every Help to Buy borrower consults with their mortgage adviser and seeks professional advice on the options available to them. Don’t leave it too late or you will be surprised by the call of the equity loan provider asking for the first instalments on your HTB borrowing.
Haverfords, independent and whole of the market advisers are here to help and the initial consultation is free for all clients. For all new clients quoting this article as a source of information Haverfords will discount their mortgage arrangement fee to £149 (normally £249).
Independent Mortgage and Protection Adviser at Haverfords