Launched in 2013, the Help to Buy scheme was designed to help more first-time buyers get on to the property ladder, given the economic pressure facing “generation rent”. It allows prospective homeowners with a 5% deposit to borrow up to 20% of the value of a property with an equity loan from the government. Now, almost a decade on from its creation, many may be thinking about how to repay their equity loan.
Repaying your equity loan
According to Government figures Help to Buy from its launch on April 1 2013 to December 31, 2019, 263,297 properties were bought with an equity loan. Equity loans under the Help to Buy scheme are interest-free for the first five years, although there is a monthly £1 management fee. After five years, interest is applied to the original amount you borrowed.
When it comes to Help to Buy repayment, the amount to be repaid is not the same as the original amount borrowed. Instead, it is based on the value of the property at that moment in time. You need to be aware that the repayment amount will move in line with the property market. So, if your property value rises, you have to repay a higher amount. If the value of your property declines, you have to repay less. If you are looking to repay your equity loan because you are selling your home, the amount you repay will be based on whichever is higher – the current market value of your home or the agreed selling price.
How is an equity loan repaid?
There are several ways to repay your equity loan. One is through the sale of your property if you move on. However, some may wish to repay but remain in that property. You may have raised enough cash to repay the loan, or you may consider remortgaging your property. You might do this if you wish to repay the loan early or want to avoid paying interest on it. To remortgage your home in order to pay off all or some of your equity loan, permission must be sought first from the administrator for Homes England. They need to give you the go-ahead to increase the borrowing on your existing mortgage.
Whether you are repaying your loan through remortgaging or repaying it in cash, you will need to appoint and pay for a RICS-approved surveyor to inspect your property and provide the government with an assessment of its current value. This valuation report will be valid for three months.
This report will be submitted to Target HCA, a private company charged by the Homes and Communities Agency with administering the Help to Buy Equity Loan Scheme. They are the point of contact when making payments, making changes to your agreement and asking questions about the scheme. Once in receipt of your surveyor’s assessment of your property value, Target will advise how much you need to repay.
You will need to have legal representation, such as that provided by Sam Conveyancing, during the process. A qualified and registered solicitor must be appointed to carry out the conveyancing work required to remove the equity loan secured against your property once it is paid off in full. They will check with Land Registry to ensure that the equity charge has been removed.
When can an equity loan be repaid?
An equity loan can be repaid at any point. However, it does not have to be repaid until you sell your property or until your mortgage term ends.