Once the initial 5 year interest-free period is over, you can choose to only pay the interest for the equity loan. However, as the interest rate increases every year and the amount owed does not reduce, this should only be seen as a short term solution. The monthly interest fee is 1.75% of the equity loan.
Paying off the loan early could help you avoid having to pay a higher amount than you borrowed. Also, if the value of your property goes up, you will benefit fully from this growth in value.
Help to Buy is a government scheme to help first-time buyers get a property with just a 5% deposit. You can borrow 20% of the purchase price (40% in London), interest-free for five years. You can apply to the scheme until 31 March 2023.
After the initial five year period, you will be charged an annual fee of 1.75% on the amount of the outstanding loan. This fee will increase each year with inflation. Your loan will become more expensive over time and must be repaid in chunks of at least 10%.
This is an 'equity loan', which means repayable amount rises or falls with the home's value, and is repaid when the home is sold. The Help-to-Buy scheme will however become more restricted over the next few years, and will stop altogether in March 2023 unless the government extends it.
Are there plans to extend the Help to Buy: Equity Loan scheme? No, the government announced that the Help to Buy: Equity Loan scheme would run until 31 March 2023. There are no current plans to extend or replace Help to Buy: Equity Loan.
When you sell the property, you will need to repay the value of the loan as a percentage of the final sale price. If the property is sold above the market value, then you will need to repay the percentage of the actual sale price.
Can I remortgage on Help to Buy? Once your initial Help to Buy mortgage deal ends (this will usually be a fixed rate for between two and five years), you can remortgage. However, if you don't find a new deal you'll be switched to the lender's Standard Variable Rate (SVR), which can prove expensive.
The first five years of the Help to Buy equity loan is interest-free. After the interest-free years, you'll be charged 1.75% on the outstanding amount as interest. This fee will increase each year by RPI plus 1% You only repay the interest, not the equity.
During the first 5 years, there is no interest to pay on the loan. Interest will be payable on the outstanding loan amount after 5 years. If you can remortgage now you may not be able to remortgage in the future due to your employment situation or restrictions imposed by lenders.
You can pay off the equity loan by remortgaging. If you've not got the savings to clear the equity loan, you could consider remortgaging. In effect this means borrowing more on your mortgage to pay off what remains of your equity loan.
Can I sell my Help to Buy home? Yes, the home will be in your name, which means you can sell it at any time. You'll have to pay back the equity loan when you sell your home or at the end of your mortgage period – whichever comes first.
2021 changes to Help to Buy scheme
The Help to Buy scheme is changing in Spring 2021 because from April, only first-time buyers will be able to use the scheme and the current plan is to end it completely by 2023. The scheme will set a regional property price cap to focus on helping those who need the scheme the most.
The Help to Buy Post Completion Agent (currently Target) requires you to appoint a solicitor to deal with the repayment of the equity loan. Target will have several requirements and legal forms which your solicitor will need to complete and send to them during the transaction.
Savills is predicting that house prices will drop by 1 per cent in 2023 with several slow years of growth to follow.
You can get an equity loan towards the cost of buying a new-build home as a first-time buyer. The Help to Buy: Equity Loan scheme will close to new applications at 6pm on 31 October 2022. This guidance applies to England.
Enhanced Help to Buy Scheme
The maximum relief available was temporarily increased on 23 July 2020. This increase has been extended in subsequent budgets and the increased relief now applies to 31 December 2022.
Can I buy any home using Help to Buy? A. The scheme is only available to new build homes, and regional price caps do apply. In London, the scheme is available on new build homes priced up to £600,000.
The report concludes that despite the consensus forecast being a further small rise in house prices next year, it is expected that they will fall by 3.0% in 2023 and 1.8% in 2024.
The government's flagship policy to replace Help to Buy, First Homes are now a material consideration in all planning applications. Eligible properties will be sold at a price of between 30 and 50% below market value – a discount that remains in perpetuity.
You can sell your home before 5 years, or soon after purchasing the home without keeping it for long. There is no 5-year rule for selling a house soon after buying it. While there is no rule, there may be penalties for breaking your mortgage term when selling your home.
This means you can't sell your home unless the HCA is repaid their loan percentage. Unless you have repaid your loan in full through staircasing (the process whereby homeowners repay a loan in part via multiple payments), you will repay the Agency's equity loan simultaneously when you sell.
If you have purchased your home using a Help to Buy Equity Loan you are able to repay this at any point after the date of completion of your purchase. You do not need to sell the property to repay the loan; you can repay it either by remortgaging the property or if you have other sufficient funds.
Can I transfer my mortgage to another lender? Yes, but you need permission to change your mortgage provider. Get in touch with the Help to Buy: Equity Loan administrator (opens in a new window) to let them know your plans.
Interest rates may have gone up or down since you last agreed to the terms of your mortgage loan agreement, so your mortgage payments in your renewal offer may be higher or lower.