How to Find the Best Remortgage Deal When Your Help to Buy Mortgage Ends: Everything You Need to Know
If you’re looking to remortgage and are part of the Help to Buy scheme (which is no longer accepting new applications), you might encounter some difficulties. We’ll discuss the main challenges you might face and how to address them.
The Help to Buy scheme was introduced in 2013 to assist first-time buyers in getting on the property ladder. Applications to this scheme are now closed, except in Wales. The deadline for new applications was 31 October 2022, and all property purchases needed to be completed by 31 March 2023.
How the Help to Buy Scheme Works
With the Help to Buy scheme, buyers could receive a 20% government loan (or up to 40% for homes in London), allowing them to secure a 75% mortgage with just a 5% deposit. This made it easier for first-time buyers to enter the property market.
Participants were required to pay a £1 monthly management fee until the loan was fully repaid.
When the scheme was available, few lenders offered this type of mortgage. Additionally, if you are looking to remortgage, there are several legal hurdles to navigate.
Can I remortgage on Help to Buy?
Once your initial Help to Buy mortgage deal, typically a fixed rate for 2 to 5 years, ends, you have the option to remortgage.
If you don’t secure a new deal, you will be moved to the lender’s standard variable rate, which is usually much more expensive.
Keep in mind that if you switch lenders, you’ll need to request a Deed of Postponement from the scheme administrator. A mortgage broker can provide more information about this process.
As with any remortgage, lenders will determine your new interest rate and monthly payments based on your loan-to-value ratio (LTV). A broker can help you calculate your LTV and navigate the eligibility criteria of various lenders.
Is it possible to remortgage in order to repay the Help to Buy equity loan?
The other key consideration with a Help to Buy remortgage is how to manage the government loan. After owning the property for five years, you’ll begin paying interest on that loan.
In the sixth year, you’ll pay 1.75% interest on the original equity loan amount.
The interest rate then increases annually every April by the Consumer Price Index (CPI) plus 2%.
For homes purchased through the scheme between 2013 and 2021, the interest rate increases by the Retail Price Index (RPI) plus 1%.
Due to the added borrowing risk and costs, many lenders require that you pay off the equity loan in full before remortgaging.
However, if you haven’t repaid the equity loan yet, you still have a few options.
Although mortgage deals may be harder to find, a mortgage broker can assist you.
Here’s a brief overview of your options:
Keep the Full Loan
You might be able to secure a new deal with your current lender or a new one, but your choices will be limited, and the fees may be high.
The downside is you’ll still owe the 20% loan when you sell the property. If the property’s value has increased, the loan amount will be higher.
Staircase (Part-Pay) the Loan
If you can afford it, you can start making monthly repayments on the equity loan.
This approach allows you to reduce the government loan to 10% of the property value, building equity in the property while keeping loan repayments manageable.
An independent property valuation will be used by both the lender and the Help to Buy scheme administrator to determine your repayment options.
Remortgage to Repay the Loan in Full
You can add the government loan to your property loan and remortgage to repay the full amount.
This option eliminates the need to repay the equity loan when you sell, allowing you to retain 100% of any increase in property value.
Typically, this is possible only if the property’s value has increased, enabling you to release the equity built up to pay off the loan.
Ensure you can afford the higher monthly repayments.
Do many lenders offer remortgages for Help to Buy?
There aren’t many options available for Help to Buy remortgages, particularly if you still need to repay the equity loan.
Since you essentially have two loans on the property, lenders consider you a riskier borrower. Consequently, these deals often come with higher interest rates and fees compared to standard remortgages.
However, it may still be more cost-effective to remortgage than to remain on your lender’s standard variable rate (SVR).
Before committing to a remortgage with any lender, ensure you receive a complete breakdown of all associated fees.
So what next?
Consult a mortgage broker six months before your Help to Buy mortgage deal concludes. They will guide you through the process and help ensure your remortgage application is successful on the first attempt.