What is a help to buy remortgage?
The help to buy remortgage is when you look to get a new and likely cheaper mortgage after a few years of buying your home with the Government’s help to buy equity loan scheme.
You will also likely be seeking a help to buy remortgage after the first 3 or 5 years of your fixed rate mortgage which you would have gotten with your help to buy equity loan. You may want to do this to avoid being put on the mortgage lenders standard variable rate which may likely be more than your current fixed rate.
A help to buy remortgage can be done with your initial mortgage lender (also known as a product transfer) or a new mortgage lender.
A help to buy remortgage isn’t particularly straightforward as there are a few things you must consider due to the fact that you have a loan which supported you in your initial mortgage.
But first, lets recap.
What is the Government’s help to buy scheme?
The government’s help to buy scheme is a scheme where a first-time buyer can put a 5% mortgage deposit down and get a 20% mortgage deposit loan from the government if you are outside London and a 20% to 40% mortgage deposit loan if you are in London.
The Government’s help to buy equity loan is interest free for the first 5 years after which you will begin to pay interest on the help to buy equity loan.
The government’s help to buy scheme has a cap on the price of properties which you can purchase with the scheme. In London you can purchase a home with the governments help to buy equity loan for up to £600,000 and outside London the maximum house price you can use the Government’s help to buy equity loan for is £450,000.
The government will also own the percentile that it loaned you as equity in your home. So if the government’s help to buy equity loan was for 35% then they will own 35% of your home which is payable once the home is sold or whenever you can buy the government out.
What should you take into consideration when looking for a help to buy remortgage?
The two main factors which you may want to consider when looking to do a help to buy remortgage are:
- Paying off your help to buy equity loan when seeking a Help to buy remortgage:
- The value of your new build property when seeking a help to buy remortgage
Paying off your help to buy equity loan when seeking a Help to buy remortgage:
Paying off part of your help to buy equity loan:
You should consider if you can borrow enough to fully or partially repay a large chunk of the government’s help to buy equity loan.
Remember, you will be paying back a percentile proportional to your current property value and not the exact amount you borrowed.
So if you borrowed £20,000 and this was for a 20% help to buy equity loan, when you come to repay your loan you will be repaying 20% of your property value. So if your property is now worth £400,000 then you will be repaying £80,000.
under the terms of the help to buy scheme the minimum help to buy equity loan you can repay is 10% of the property value.
To repay some of the loan there is a £115 admin fee. To fully repay the help to buy equity loan there is an admin fee of £200.
Paying this loan will reduce how much equity the government owns in your property in relation to how much you pay off.
This might be a good way to save on the interest you would have had to pay on the loan.
Why might it be important to pay off your help to buy equity loan?
A help to buy remortgage is especially important when considering the fact that your help to buy equity loan is interest free for 5 years and after which interest is charged at 1.75% of the loan’s value, and will increase every year in line with the Retail Price Index, plus 1%.
This ofcourse means you will now start paying back the loan plus your current mortgage repayments which you are already making per month.
With all this in mind, a help to buy remortgage is worth a thought at or before the help to buy equity loan repayments are due.
Is paying off your help to buy equity loan the best option?
This doesnt necessarily mean paying off your help to buy equity loan should be your priority. It is, after all, costing you nothing aside from the £12 or so yearly management fee.
This means you could instead use any equity in your home or savings to reduce the current LTV on your mortgage and reduce the total cost of your mortgage if you find any mortgage lender willing to lend to you with your help to buy equity loan still present in the new mortgage.
The value of your new build property when seeking a help to buy remortgage:
The government’s help to buy schemes are only available for new build properties. This is done to encourage more home builders and developers to build more homes to put a stop on the Uk’s shortage of housing.
New build houses have been known to be overpriced in comparison with their much older counterparts.
This means that when you initially buy your new build property with a help to buy equity loan you could have overpaid on the property price.
When you go to get a help to buy remortgage, the prospective new mortgage lender will carry out a valuation check on your property and will likely value it at 5 to 20% less than what you paid for it.
This means it is possible that you will have a current mortgage which is more than your property is worth. This is known as negative equity.
Negative equity will make it incredibly unlikely for you to get a help to buy remortgage as your current debts (your current help to buy mortgage) is more than the value of your asset (your help to buy new build home).
Negative equity when seeking a help to buy remortgage is further compounded by the fact that aside from the house being possible worth up to or more than 20% of the purchase price, there is also the chance that house prices could have fallen overall.
The best way to avoid or mitigate this issue is by timing your remortgage for when your house may have risen in value. This means you will be able to use the equity in your property to repay your help to buy equity loan.
The issues with a help to buy remortgage
Most mortgage lenders don’t offer a help to buy remortgage.
You will need to speak to a help to buy mortgage broker to find the best remortgage options for you.
What’s even worse is that most of the lenders who offer a help to buy remortgage will insist that you pay off the help to buy equity loan prior to them giving you a remortgage or as part of the remortgage.
The help to buy remortgage process
- Make an enquiry
- Speak to a help to buy mortgage broker
- Your help to buy mortgage broker will find the best remortgage deal and liaison with the HTB agency
- Your help to buy remortgage broker will process the remortgage on your behalf
- An admin fee is payable to the Help to buy administrators who handle the transaction too
- You pay for a valuation for the help to buy equity loan (if it is being repaid)
- The property is re-valued by the lender
- The mortgage is offered
- The solicitors handle switching lender
- You complete on your mortgage!
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.