Help to Buy Remortgage
Lee and Neezam explain remortgaging with Help to Buy.
Podcast approved by The Openwork Partnership on 04 April 2023.
Can you remortgage with Help to Buy? How does it work?
The short answer is yes – you can absolutely remortgage on the Help to Buy scheme and we’re seeing a lot of this now. A lot of people have reached five years since taking out a mortgage under the Help to Buy scheme and will be looking for a new deal.
Not all lenders will allow you to remortgage your property if you’re on Help to Buy. They need to be ones that offer Help to Buy products. How you remortgage with Help to Buy will depend on what you want to do. If you want to keep your mortgage as is and get a new interest rate, that’s fairly straightforward as long as you approach the right lenders.
If you want to pay off the Help to Buy loan, that’s slightly different. It requires more work because you’re increasing your borrowing, so we need to find lenders that are happy with that.
When is a good time to pay off a Help to Buy loan?
Everyone is different and will have their own circumstances and priorities, so it’s quite difficult to say when’s best to pay the loan off. But what a lot of people aim to do is pay off the loan before they start paying interest on the borrowing.
With the Help to Buy equity loan there’s a period of five years where you don’t pay any interest. But the thing to keep in mind is that it’s based on a percentage of your property value. So if you bought a property for £100,000 with Help to Buy you most likely took an equity loan of 20%, which is £20,000.
Five years later on, actually your equity loan could have doubled to £40,000 due to the property market growing. So although it’s interest free, it’s based on a percentage of your property value.
To pay the loan off you need to have the funds to do it, or be able to raise the funds via a remortgage. You might want to pay it off as quickly as possible because you’re worried about your equity loan increasing significantly.
How long does it take to remortgage with Help to Buy?
A standard Help to Buy remortgage will take a similar time to a normal remortgage – anything from four to eight weeks. If you’re looking to repay your loan it can take longer, because there are more hoops to jump through. There’s more legal work because you are repaying a form of a second mortgage on your property. Allow yourself at least a couple of months as a minimum, perhaps three months to make sure you’ve got all your ducks in a row when you apply for your new mortgage.
Do you need a solicitor to remortgage with Help to Buy?
Yes – every remortgage has an element of legal work required. That’s the same whether or not you’re paying off the loan. The only time you don’t need a solicitor is if you’re sticking with the same lender. They’re already lending to you, so they’re much more relaxed. There’s also no need to make any changes to your title deed on the Land Registry.
If you’re switching from one lender to another there is a bit of legal work, and if you’re paying off the loan there are multiple parties involved – yourself, the bank and also the Help to Buy equity loan agent as well. It’s a lengthy process.
So yes, a solicitor will be required. If you use a broker, we’ll be able to explain the cost and perhaps help you with some of the forms as well.
Is remortgaging the best way to pay back Help to Buy or are there any other options?
That’s a tough one to answer in that it depends on the individual and whether it’s the best route for them. One thing that stands out for me, which I touched on earlier, is that the first five years of Help to Buy is interest-free.
So there isn’t a huge benefit from repaying it early because you’re not being charged interest. But once you get to the fifth year interest is payable. At that point remortgaging could be a good option to get it repaid.
If you’re in the fortunate position of having 20% of the property value saved up, and you want to own the property in full, you could repay the loan in cash. If not, remortgaging is probably the easiest way, and the normal advice is to pay it off once interest starts being incurred.
How much does it cost to pay back Help to Buy?
That’s quite straightforward – it’s the same percentage of your property value at the time you’re paying it back. So if you took a 20% equity loan when you bought the property, you will need to repay 20% of the property value at the point when you pay the loan back.
In terms of the process, your Help to Buy agent will want to verify a valuation. They’ll ask you to instruct one and send them the result, or they may arrange it themselves. There are some additional legal fees because a solicitor needs to handle some aspects of the transaction.
There are also a few small admin costs. Your Help to Buy Agent will confirm all the fees so you can make an informed decision as to whether it’s right for you to remortgage now or wait. You can also get advice by speaking to a broker to understand the full pros and cons of all the options.
What else should we consider with Help to Buy?
Neezam and I have helped a lot of clients with Help to Buy remortgages. There are quite a few parties involved: solicitors, the bank and the loan provider as well. It can be quite complex. You have to get the property valued by a particular surveyor to understand how much to pay back.
If you’re looking to remortgage and keep the loan there’s also the added factor of finding a suitable bank. If you’re looking to repay it, you need to find a lender that will allow you to raise the additional money. It’s a real challenge doing all of this on your own.
How we can help particularly is in making sure you understand what’s required through Help to Buy, and in communicating with all parties. We’ll also support you with the mortgage as well. We’ll assist you in the whole process.
The more time you give yourself the better. I would urge anyone who’s remortgaging to start looking at your options six months before your deal comes to an end, or before you start incurring interest on the loan. Start a conversation with a broker or lender at least six months out.
This is something we help a lot of clients with and we try to make the process as easy as possible. We take away a lot of the work and the stress, so having time to understand the options and weigh up what’s right for you will no doubt be really valuable.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Approved by The Openwork Partnership on 04 April 2023.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS