Repay Help to Buy
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Repay Help to Buy
How did the Help to Buy scheme work?
It was a government scheme that offered buyers an equity loan to buy a new build home. It has now ended, but lots of people still have the loans in place.
The scheme essentially allowed buyers to purchase property with a 5% deposit, and they would receive a government loan of up to 20% to top up that deposit. It increased the amount they could borrow and gave them a better Loan to Value, which meant lower monthly repayments.
All of this was interest-free for the first five years then after that, you’d end up paying interest, starting at 1.75%.
When is a good time to repay my Help to Buy equity loan?
Most people repay it after about five years, when the loan is no longer interest-free. A lot of homeowners look into the potential of repaying it when they’re remortgaging.
Many chose a two or five-year product when they initially took out the mortgage, and they look at remortgaging to roll the loan into their new mortgage. That way they have it all in one place and only one payment is going out each month.
Whether it’s a good idea all depends on your personal circumstances at the time. We are finding that a lot of people are wanting to repay their Help to Buy because they don’t want to have that burden and debt. They want to simplify their finances.
Is it worth paying off Help to Buy early?
Again, it depends on your personal circumstances. A lot of people who purchased with Help to Buy look at remortgaging after five years. They may be able to free up some capital from their current property – if it’s increased in value they can use that to pay off the Help to Buy loan.
It leaves them with only the mortgage payments to worry about. If you leave it longer, you will end up paying interest on the Help to Buy portion. Plus, if your property increases in value, you have to pay back more, because it’s a 20% loan towards the value of your property. So as your house increases in value, you owe more.
Paying it off sooner can be in your best interests, depending on your personal circumstances.
Can you remortgage with Help to Buy? How does it work?
Yes. It’s a lot like a standard mortgage. You are a little bit limited on who you can go with, especially if you’re wanting to keep your Help to Buy loan. Only a select number of lenders will allow you to remortgage in this situation, although your current lender will always let you do a product transfer.
But if you are wanting to repay the Help to Buy loan, the vast majority of lenders will allow you to do that, and you’d be able to move to a different lender. That way you can take advantage of better products and rates by shopping around.
How long does it take to remortgage with Help to Buy?
It normally takes about three months because you need to get a RICS survey done so that the Help to Buy scheme managers know exactly how much the property is worth. They can then calculate how much it will cost to repay that loan.
Whether you want to borrow extra to repay it or if you are just transferring the loan across, you will still need that RICS survey. A standard Help to Buy remortgage usually takes anything from four to eight weeks, but it can take three months if you’re looking to repay your loan. It can take longer because there are more hoops to jump through and more legal work in the background.
I always recommend to anyone who’s thinking of remortgaging to begin looking around six months before your product runs out. Around three months before you need to complete, you would get your RICS survey, and all the legal work will be running in the background. But we can keep shopping around for the best rate at all times during that period.
Do you need a solicitor to remortgage with Help to Buy?
Yes, you do. Every remortgage has an element of legal work in the background. They’re the ones who dot the i’s and cross the t’s and look after the lender’s interests.
The only time you wouldn’t need a solicitor is if you are doing a product transfer and staying with your current lender. In that case they’ve already done the due diligence needed. They’re just changing the product and interest rate.
If you’re switching from one lender to another, legal work needs doing, and if you’re paying off the Help to Buy loan, there are multiple parties involved including the Help to Buy body, the new lender and your current lender. So you would definitely need to involve a solicitor.
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Is remortgaging the best way to pay back Help to Buy or are there any other options?
Again, it depends upon your individual circumstances whether it’s the best strategy for you. Within the first five years, it’s interest free. The majority of people see that as free money, but they soon see the benefit of repaying it once it’s becoming a cost.
It can be quite a large cost, and people don’t really factor that in when they’re taking it out initially. But if you’re in the position of having 20% of the property value saved up or in equity, and you want to own the property outright, remortgaging is a good strategy.
If you’re in the very fortunate position of having 20% of the value of the property in cash, then of course paying it off that way is the best option. Repaying any debt as quickly as possible is always the best strategy for most people.
How much does it cost to pay Back Help to Buy? Can you pay off Help to Buy in stages?
If you took out 20% of the property at the start as an equity loan, you need to repay back 20% of the property value in one go. It can’t be done in stages.
If you bought the property for £200,000, 20% would be £40,000. If the property has now gone up to £300,000 you would have to pay back 20% of that amount, which is £60,000.
You have to pay it back in one lump sum. There are other costs too – you’d have a survey cost, solicitor fees and broker fees. All of these things you need to take into account before you embark on the process. You need to have enough equity to be able to pay it off, or enough cash if you’re in that fortunate position.
How can a mortgage broker like Montgomery help with my Help to Buy remortgage?
We would ideally start the process with you six months in advance. We would hold your hand at every point, instructing surveyors on your behalf and dealing with solicitors.
A lot of the time we would try to get a mortgage surveyor to value the property as high as possible, so that you get the best Loan to Value. But with the Help to Buy survey, we would ideally want the surveyor to be as kind as possible and keep the valuation lower, so that you’re paying back a little bit less. That way, you’re getting the best of both worlds.
We guide and coach you on the process so you know exactly what you need to do and when, to make it as easy as possible. Plus, we will keep shopping around for the most suitable interest rate for you throughout those six months.
What else do we need to know about remortgaging to repay Help to Buy?
Just take into account that there are a lot of different parties involved. There’s yourself, the surveyor, the Help to Buy organisation, solicitors, your bank, and if you’re moving to a different lender, the new bank. So it can be quite complex.
Just having your property valued and knowing which survey you need can be confusing. There’s an awful lot and the average person can find it very daunting. Being able to engage a professional to help you makes your life so much easier. We’re all time-poor, so having someone to hold your hand and guide you makes a world of difference.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up with your mortgage repayments.
You may have to pay an early repayment charge to your existing lender if you remortgage.