28/10/2023
If you have purchased a new build home through the Help to Buy Equity Loan scheme in the UK, have you considered your next steps when it comes to remortgaging?
At Gatton Gray Finsncial Services, we can help you through the process of remortgaging your Help to Buy, and provide you with all the information you need to enable you to make an informed decision.
Understanding the Help to Buy: Equity Loan Scheme
The Help to Buy: Equity Loan scheme was a government-backed initiative designed to assist first-time buyers in purchasing a new build home. It allowed you to buy a property with a deposit as low as 5%. Under this scheme, the government provided you with an equity loan of up to 20% (or 40% in London) of the property value, which remained interest-free for the first five years. The remaining 75% (or 55% in London) is covered through a mortgage.
It’s important to understand and remember, that the equity loan must be repaid. It is repayable either when you sell the property, or at the end of the loan term, which is usually 25 years. The amount you need to repay, is linked to the value of your home at the time of repayment, not the amount of the original loan. This means that if the value of your property has increased, the amount you owe on the equity loan will also increase. If the value of your home decreases, so will the loan amount.
How Remortgaging on Help to Buy Works
Remortgaging on Help to Buy is similar to remortgaging on a standard property, but there are some additional steps which need to be followed.
We will compare mortgage options to find the most suitable deal for your personal circumstances.
As the government agency is responsible for providing equity loans, you’ll need to obtain permission from Homes England to remortgage. This involves filling out an application form and paying an admin fee.
Get a property valuation
Arrange for a valuation of your property by a Royal Institution of Chartered Surveyors (RICS) surveyor. The surveyor must be on the help to buy panel. The valuation will determine the current market value of your home and the amount remaining on your equity loan. You are responsible for the cost of valuation which can vary, depending on the type of the property and the surveyor.
Decide on your equity loan repayment
You will then need to consider whether you wish to repay all of your outstanding equity loan, or just a portion of it, during the remortgaging process. Regardless of whether you choose to repay some or all of the loan, you will need to borrow additional funds from your new mortgage lender. You need to bear in mind that if you are repaying only part of the loan, increments of 10% is required, based on the current value of the property.
Weighing the Benefits and Drawbacks
Before deciding to remortgage on Help to Buy, it is very important that you consider the benefits as well as the disadvantages which are associated with the remortgaging process.
Benefits of remortgaging on Help to Buy
Potential savings:
Remortgaging could potentially enable you to secure a lower interest rate, therefore resulting in reducing your monthly mortgage repayments, resulting in possible long-term savings and the potential to free up funds for other purposes.
Debt reduction
Remortgaging to repay your Help to Buy, provides the opportunity to repay some or all your equity loan debt. This means you will gradually reduce your overall debt over the mortgage term.
Flexibility in mortgage terms
Remortgaging gives you the opportunity to look at different mortgage terms and options which may be more suitable for you and your personal circumstances. This flexibility can provide you with greater control over your homeownership journey and enable you to own 100% of your property.
Drawbacks of remortgaging on Help to Buy
Additional costs:
Remortgaging your Help to Buy will incur various costs which you need to consider before making your decision. These will potentially include valuation fees, admin fees, legal fees, mortgage and broker fees. It is extremely important to factor in these expenses when assessing the financial feasibility of remortgaging, to ascertain if the potential, long term savings, outweigh the costs involved.
Affordability considerations
Lenders will take into consideration, both your mortgage and equity loan costs when assessing affordability. Borrowing additional funds via a remortgage can be challenging because the equity loan will be considered a financial liability and will impacts your eligibility and borrowing capacity. Some lenders will also only consider a remortgage if you are repaying the full outstanding loan amount.
At Gatton Gray Financial Services, we understand the importance of making informed decisions when it comes to your homeownership journey and we aim to ensure you have the correct tools to enable you to make the right decision for you.
If you’re interested in remortgaging to repay your Help to Buy, or finding out if it’s right for you, come and have a free, no obligation chat or contact us on:
Tel: 07990510967
Email: [email protected]
