Back in 2013, the UK Government launched a new home buying scheme; Help to Buy equity loans. Post-credit crunch, the property market took a while to get back on its feet. This new government scheme allowed for a quicker boost back to prominence, so much so that years on it is in a much better place than before.
For the first 5 years it is interest free, meaning many home buyers are now reaching their repayment date. If they don’t pay it back, interest will be added on.
If you are reading the end of your 5 year period or it has already ended, you may find the help of an experienced mortgage broker in Manchester useful. We may be able to reduce the amount you pay back per month or re-organise your finances.
The way the Help to Buy equity loan scheme works, is the Government loans the applicant up to 20% of the value of the property. For the first 5 years, the applicant doesn’t pay back any interest. However, if the value of the property goes up, then you will be required to pay more back to the government.
So, for example, if your property were worth £80,000, you could borrow £16,000. However, if the property suddenly were worth £100,000, you’d have to pay back £20,000. In this case it could appear misleading to some, however the same works the other way. If your property dropped in value to £65,000, you’d only pay back £13,000.
You are also only required to put down 5% of the value as a deposit. As with all mortgages, more deposit means better deals, but 5% is the minimum.
Over the years we have heard from many borrowers who were using the Help to Buy equity loan, that they aren’t entirely sure what they signed up to when they bought their home.
This could be for a few reasons, such as the scheme not being properly explained or getting caught up in the excitement of the home buying process. Regardless of why, it certainly is a shock when a letter comes through asking you how exactly you plan to repay their loan.
Due to the 20 % being a loan and not a gift, technically the Government owns a percentage in the home. After the 5 year interest free period is over, if it has not been repaid, interest will start being charged.
At first in the 6th year, it’s 1.75%, and then each year after that it increases. When this occurs, many customers struggle to keep up their monthly mortgage repayments. Most then look at taking out a remortgage to help cover this.
If a remortgage is the option you’re looking to take, you’ll find that not all lenders will accept this from Help to Buy customers. However, this is not unheard of and is where using a mortgage broker in Manchester could help.
With many lenders on panel and thousands of deals to choose from, providing it is something you can afford, we should be able to find you a lender to remortgage with.
When raising capital to repay an equity loan, there are restrictions in place on the maximum loan to value. Lenders may still consider going up to 95% though.
One of the big advantages here is that repaying the equity loan in full will mean that any future increase in the properties value will solely belong to the homeowner, as the governments share will have been paid off. On the off chance a lender cannot be found to help with this, you could look at “staircasing”.
This is where you gradually pay off the loan over a set amount of time, in specific instalments. Over time this should reduce the percentage in your home that the government actually owns. Please note that this is only possible in multiples of 10.