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Remortgage with Help to Buy: repaying or keeping the equity loan

Many people who bought with a Help to Buy equity loan are now coming to the end of their first fixed rate, or have passed the point where the equity loan stops being interest-free. Remortgaging is very possible, but the equity loan adds its own steps: what you owe moves with the value of your home, and changes usually need authorisation from the scheme administrator. This note is general information from Property Money Limited — not advice and not a personal recommendation.

The problem

Help to Buy helped many people buy new build homes with a smaller deposit. Years later, three questions tend to come up together. The initial mortgage deal ends and the rate jumps to the lender’s standard variable rate. The equity loan is no longer interest-free. And people are unsure whether they can remortgage at all without repaying the government first.

How the Help to Buy equity loan works

Under the England scheme, the equity loan was a percentage of the purchase price, secured as a second charge behind your mortgage. What you repay is the same percentage of the home’s value at the time you repay, not the original cash amount. If your home has gone up in value, you repay more; if it has fallen, you repay less.

The loan was interest-free for the first five years. From the start of year six, an annual interest fee applies, starting at 1.75% of the original loan amount and rising each year by an inflation-linked amount. The exact measure depends on when you bought, so check your own loan documents. Interest payments do not reduce the equity loan itself.

Your main remortgage routes

• Remortgage and keep the equity loan. You move your main mortgage to a new deal and leave the equity loan in place. The administrator usually needs to authorise the remortgage, and the new lender has to accept a property with a Help to Buy second charge.
• Remortgage and repay the equity loan in full. You borrow more on your main mortgage to clear the equity loan. That needs a valuation, and you need to pass affordability on the larger loan.
• Staircase — repay part of it. You repay a portion of the equity loan. The scheme sets a minimum part-repayment, commonly described as 10% of the home’s value, and the calculation is based on a current valuation.
• Product transfer with your current lender. Switching to a new deal with your existing lender, without borrowing more, is often simpler, though it may still involve the scheme’s processes.

What lenders typically look at

• Whether they accept Help to Buy cases. Not every lender remortgages properties with an equity loan in place, and some only do so in certain circumstances.
• Total borrowing against the value. Lenders look at the main mortgage plus the equity loan against the current value. A fall in value, or a new build premium that has unwound, can squeeze the numbers.
• Affordability. If you are borrowing more to repay the equity loan, you need to pass the lender’s affordability test on the new, larger mortgage. See affordability and existing debts.
• Valuation. Repaying any of the equity loan requires a valuation by a qualified surveyor that meets the scheme’s rules, and it is time-limited. The lender’s valuation and the scheme valuation can differ.
• Capital raising. Raising extra money for other purposes, while keeping the equity loan, is often restricted under the scheme’s rules. Check before planning on it.

Coming off a deal with a Help to Buy loan? Send us the facts — a few lines is enough.

Mortgagability in plain terms

Mortgagability here means: will a lender take on your main mortgage with the equity loan either kept or repaid, at today’s value and your current income — and will the scheme authorise the change? Start early: authorisations, valuations and offers all take time, and you may want them lined up before your current deal ends.

A typical order of events

The exact process is set by the scheme administrator and your lender, but people usually find it runs roughly like this: check the current rules and forms for your type of change; get a valuation that meets the scheme’s requirements if you are repaying any of the loan; apply to the new lender or arrange a product transfer; get authorisation for the remortgage or redemption; then complete through a conveyancer, with any equity loan repayment sent at completion. Valuations and authorisations have expiry dates, so the steps need lining up rather than doing one at a time with long gaps.

Common mix-ups

“I borrowed £60,000, so I owe £60,000” — not under the England scheme. You owe the same percentage of today’s value, which could be more or less.

Paying the interest fee does not chip away at the loan. Only repayments do.

Moving home is different from remortgaging. If you sell, the equity loan is normally repaid from the sale. Buying your next home would be a separate application.

New build values do not always rise in line with the wider market, which can affect both the remortgage and the equity loan figure. See new build, ex-council and cladding if your building has other issues. And a leasehold flat brings its own checks — see leasehold mortgages.

Repaying the equity loan usually means a bigger main mortgage and a higher monthly payment. Check the household would still be covered if income stopped. The protection gap analyser is an optional illustrative check only.

Remortgage with Help to Buy: common questions

Next step

Have your current mortgage balance and end date, the original Help to Buy percentage, a rough idea of today’s value, your income and any savings you could put towards repayment. That is enough to compare keeping, part-repaying or clearing the equity loan.