Remortgaging with the Help to Buy scheme has helped many first-time home buyers get onto the property ladder since its inception in 2013. The scheme, which offered a government loan of 20%, meant that first-time buyers could take out a 75% mortgage and only need to put down a 5% deposit. Thanks to this, the savings journey towards owning a home is much quicker than with traditional mortgages.
As this government scheme expired in March 2023, not many lenders offer this type of mortgage. Therefore, it’s important to note that there are a number of legal hoops to jump through if you’re looking to remortgage with the Help to Buy scheme in place. The deadline to complete has been extended for some eligible homebuyers to May 2023, there are certain criteria that need to be met, such as, completion needs to take place before 31st May 2023, you must be a first time buyer over the age of 18 and your homebuilder must be registered with the scheme.
If your initial Help to Buy mortgage deal which is usually a fixed rate for two to five years, ends, you can remortgage. However, if you don’t find a new deal, you may be moved to the lender’s Standard Variable Rate (SVR), which can prove to be expensive. It’s crucial that you seek professional advice from a mortgage broker who can guide you through the process if you want to switch lender, reflecting the importance of diligence and caution during the process of remortgaging with the Help to Buy scheme.
As with any remortgage, lenders will calculate your new interest rate and monthly repayment amounts based on the loan to value ratio (LTV) which determines how much of the property you own. To obtain the best deal for you, it’s a good idea to consult with a broker who can help you work out which lenders you are eligible for.
When it comes down to a Help to Buy remortgage, the key question you face is how to manage the 20% government loan. After five years, you’ll begin to start paying interest on that loan. Due to the extra borrowing risk and the cost, many lenders will only accept you if you’ve paid off the equity loan in full before remortgaging.
There are a few stages in the process to pay off your help to buy equity loan which are:
Luckily, it’s still possible to add the government loan to your property loan and remortgage to repay the full amount, known as adding the equity loan to your mortgage. This option entirely removes the need to repay the 20% equity loan when you come to sell, meaning that you’ll get 100% of any increase in your property value.
It’s worth noting that you can only do this if you hold enough equity in your property, as remortgaging would essentially allow you to release equity you’ve built up to pay off the equity loan. Moreover, you must ensure that you can afford the higher monthly repayments since a longer-term and larger mortgage loan will result in higher monthly payments and will work out more expensive overall.
The best time to start seeking a remortgaging deal is when your property has increased in value because you can use the equity you’ve built up as a bargaining tool. Establishing a solid savings plan will improve your chances of obtaining the best deal, as having a lump sum will decrease your LTV ratio. Extending your mortgage term may also be an option, but it’s critical that you work this out carefully with a mortgage broker to ensure that you’re not taking on any unnecessary risks.
It’s also important to act promptly when it comes to seeking the best remortgaging deals. As the value of your house comes down, your options will be limited. Negative equity occurs when your home's resale value isn’t enough to repay the outstanding balance on your current mortgage. Your only realistic option, in that case, is to wait it out on the SVR until property prices rise again. Hopefully, this should not take too long, and it’s better to remortgage at a later stage once the housing market has improved if you find yourself in negative equity.
In conclusion, speaking to a mortgage broker within two months of your Help to Buy mortgage deal coming to an end is advisable. A mortgage broker can help you navigate the process and ensure that your remortgage application is as robust as possible, taking into account your individual financial circumstances and helping you get the best possible deal.
If you are looking to remortgage or pay off your help to buy using the equity in your home, contact us today at 0151 662 0188 or email [email protected]
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