Under the Help To Buy scheme, you could purchase a house by putting down just 5% of the property value as a deposit.
You could then receive an equity loan of up to 20% through the Help to Buy Scheme (40% in London) and you would not need to pay interest on the Help to Buy aspect of the loan for the first five years.
However, once this period is over, lenders start charging interest, which is why remortgaging your property might be a good idea.
And the best way to do so is through a Help To Buy Remortgage. The aim of this guide is to help you know all about such mortgages, making it easy to decide whether they are a suitable choice.
Table of Contents
- Why Should You Opt For A Help To Buy Remortgage?
- Remortgaging A Help To Buy Scheme
- Requirements For A Help To Buy Remortgage
- Applying for a Help to Buy Remortgage
- Checks Carried Out By Lenders
- Mortgage Affordability Calculator
- Do You Need To Repay The Equity Loan When Remortgaging?
- Remortgaging To Pay Off The Equity Loan
- FAQs
- 1. What happens if you are unable to repay the loan?
- 2. Do you need to pay fees when remortgaging a Help To Buy?
- 3. Which lenders offer Help To Buy Remortgages?
- 4. How much equity can be released through a Help To Buy Remortgage?
- 5. What happens if the property value changes when applying for a remortgage?
- Final Thoughts
Why Should You Opt For A Help To Buy Remortgage?
The primary purpose of the Help To Buy scheme is to make it easier for first-time buyers to purchase property.
It does this by reducing the amount of funds you need to borrow through a mortgage as the Help to Buy Equity Loan will act as part of your deposit in addition to the minimum of 5% you would need to provide through your own funds.
However, once the mortgage starts attracting interest at the end of five years, it can lead to a significant increase in your monthly expenses. Another factor to consider is the possibility of the mortgage deal coming to an end at the same time.
When this happens, lenders start charging the standard variable rate (SVR), which also tends to be higher than a fixed rate option. In such circumstances, a Help To Buy Remortgage might be the best option since it can make it easier to pay off the loan.
Remortgaging A Help To Buy Scheme
You can remortgage a Help To Buy loan into another mortgage, whether that is with your current lender or a new one, to avoid the lender’s SVR. And like a standard mortgage, the lender will consider the loan-to-value (LTV) when determining which loan products to offer.
Another factor that makes this remortgage more complicated than a regular loan is the fact that under the Help To Buy scheme, the 20% equity loan has to be repaid within 25 years of the loan being issued. This can be done at the time of selling the property or by remortgaging and including either 50% of the equity loan or all of it into a new mortgage.
Requirements For A Help To Buy Remortgage
If you’re planning to apply for a Help To Buy Remortgage to repay all or part of your Equity Loan then you will need the following:
1. Mortgage Redemption Statement
A mortgage redemption statement will be provided by the mortgage lender and will provide information regarding your outstanding balance on your mortgage.
Keep in mind that these statements have to be procured within 12 working days from your application to Help to Buy. The permission, once granted, will provide you with an Authority To Proceed form. This is only valid for a period of six months, so the process should be completed within that time frame.
Otherwise, you will need to seek permission again.
2. Valuation
You will need to arrange a valuation on your property from a RICS qualified surveyor. This will allow Help to Buy to know the loan-to-value (LTV) of your property and establish the amount of loan you will need to repay based on the properties current value.
Applying for a Help to Buy Remortgage
When planning to remortgage your current Help To Buy Mortgage, you should first consult an experienced mortgage advisor.
An advisor can perform checks regarding various financial aspects to ensure you are eligible and find lenders that offer the best rates.
You will also need to make sure you meet the criteria most lenders put in place for such loans. These include having enough equity in the property and permission from the equity loan provider.
Checks Carried Out By Lenders
As with all mortgage applications, lenders will conduct checks when assessing an application. These can include:
A. Applicant Check
If you apply for the remortgage with the same lender and you are not borrowing additional funds to clear the Equity Loan, they will simply review the payment history when considering the application. You should inform them if any changes have occurred with the loan.
B. Affordability
The lender will also determine the amount you can borrow depending on your income and regular expenditure. Based on that, they can find out whether the new deal is affordable or not.
Mortgage Affordability Calculator
C. Credit Check
A credit check will provide information regarding your credit history and any issues therein.
Do You Need To Repay The Equity Loan When Remortgaging?
You are not required to clear the Help to Buy Equity Loan when remortgaging but just be aware that if you are outside of the 5 year interest free period then you will have to start paying interest on the loan if you keep it in place.
With this in mind, it may be beneficial to clear either part or all of the equity loan if it’s affordable and you have sufficient equity in the property to do so.
Remortgaging To Pay Off The Equity Loan
You can repay the loan in part or in full at any time providing you have enough equity and the mortgage meets a lender’s affordability assessment.
However, this will involve borrowing more against the property, which will result in an increase in the mortgage payments so always bear this in mind.
Paying part of the loan can help reduce the interest payments that will be charged from the sixth year.
FAQs
1. What happens if you are unable to repay the loan?
If you cannot repay the equity loan, you will need to pay the interest from the sixth year of having the loan.
2. Do you need to pay fees when remortgaging a Help To Buy?
Depending on whether you decide to repay some or all of the equity loan, the lender may charge a fee during the remortgage process. Other charges involved may include broker fees, legal fees, valuation fees, booking fees, etc.
3. Which lenders offer Help To Buy Remortgages?
Many lenders offer Help To Buy Remortgages, these include Halifax, Barclays and NatWest to name a few.
4. How much equity can be released through a Help To Buy Remortgage?
Many lenders consider a remortgage with up to 90% LTV, and some even go up to 95%. To find a suitable lender, consider speaking to an expert mortgage advisor who can find the best available options for your circumstances.
5. What happens if the property value changes when applying for a remortgage?
If the property value increases, your equity will increase, which can be helpful in maximising the Help To Buy Remortgage.
On the other hand, if the value decreases and the equity becomes negative, the resale value of the house will be inadequate to cover the outstanding mortgage balance.
Final Thoughts
A Help To Buy Remortgage is a sound option if you’re nearing the end of the deal term and want to avoid high SVR charges by lenders and also paying the interest on the Equity Loan.
It can be obtained through the same lender or a new one and can even be used to repay the equity loan.
You only need to meet the eligibility criteria for such loans and obtain permission from the mortgage provider and Help to Buy. As with other types of mortgages, maintaining a good credit history and clearing up any outstanding debts can be helpful as well.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
I am CeMAP (Certificate in Mortgage Advice and Practice) qualified mortgage adviser with a strong background in Finance. I specialise in providing expert advice on a range of mortgage products, including first-time buyers, remortgages, buy-to-let mortgages and bad credit mortgages.