Help to buy remortgage guide for properties on the UK Help to Buy Scheme
You may encounter difficulties if you are on the Help-to-Buy scheme and trying to refinance and in this article we will discuss the most common challenges and how to overcome them.
You could be charged thousands more in interest if you fail to remortgage the Help to Buy equity loan.
Remortgaging with an equity loan from Help to Buy can be difficult but it can be done.
To help first-time buyers climb the ladder to property ownership, the Help to Buy government loan program was created in 2013.
Buyers could get a 75% mortgage with a 20% government loan and only need a 5% deposit. This made saving much easier but this type of mortgage is not offered by many lenders these days.
The scheme will expire in March 2023. If you are looking to remortgage, there are many legal hurdles to overcome.
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Can I remortgage my Help to Buy mortgage?
You can remortgage after your Help to Buy mortgage deal expires. Typically, this fixed rate lasts between two and five years.
If you do not find a new deal, you will be moved to your lender’s Standard Variable Rate (SVR).
This can lead to high costs so remember that switching lenders will require you to submit a Deed to Postponement request for the scheme administrator. Your mortgage broker can provide this information.
Lenders will calculate your monthly payments and interest rate based on the loan-to-value ratio (LTV).
This can be calculated by a broker who can also help you understand the eligibility criteria for different lenders.
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Remortgaging is important Help to Buy
The Help to Buy Equity loan allows you to get on the property ladder by allowing you to borrow less than a mortgage. This can help you with affordability. It is time to evaluate your options if the government begins charging interest after five years.
While you can continue to live as before, your monthly bills will increase due to the interest you now have to pay. This is why it might be a good time to remortgage the Help to Buy loan. This will allow you to pay off the loan in full or transfer the loan onto your mortgage.
We recommend talking to a free-of-charge mortgage broker if you’re considering remortgaging. You can get a Help to Buy comparison to determine your best option.
Can I remortgage my Help to Buy equity loan to repay it?
Another important question you will need to answer when applying for a Help To Buy remortgage is how to deal with the 20% government loan.
After you have owned the property for five consecutive years, interest will begin to accrue on loan.
Due to the increased borrowing risk and the associated cost, most lenders won’t accept you unless you have paid off the equity loan completely before you remortgage.
There are still options if you haven’t paid off your equity loan yet. Mortgage deals can be challenging to find, but a mortgage broker may be able to help you get them.
Here are some quick examples of the options available to you below.
Remain on the loan in its entirety
Although you may be able to take out a new agreement with your existing lender or a different lender, your options are limited and fees can be high.
You’ll still need to pay 20% when you sell. The amount is based on property value so if your property has increased in value, it will be more.
Staircase (part pay) the loan
If you have the funds, you can begin paying the equity loan back in monthly instalments. This will allow you to reduce the government loan by 10%.
While building equity in your property will help you keep loan repayments low, it will also allow you to build equity.
To calculate your repayment options, both the lender and administrator of Help to Buy will need to use an independent property appraisal.
Remortgage to fully repay the loan
You can add a Government loan to your property loan. This option eliminates the requirement to repay the 20% equity loan when the property is sold.
You’ll receive 100% of any increase in the property’s value.
This is only possible if your property’s value has increased.
Remortgaging allows you to access the equity you have built up to repay the loan.
It is essential to make sure you can afford the monthly payments.
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Are there many lenders that offer remortgages to help you buy?
There aren’t many loans available for Help to Buy Remortgages. This is especially true if you have an equity loan to repay.
The lender considers you a more risky borrower because you have two loans attached to the property.
Deals are generally more expensive than average remortgaging in terms of interest rates and fees.
However, remortgaging might still be cheaper than staying on your lender’s SVR.
What is the best Help to Buy Remortgage Deals?
When getting the best deals on remortgaging, timing is crucial.
You can leverage the equity you have built up to get a better deal if your property is of higher value.
Also, paying a lump sum down your LTV ratio will help. You may be able to extend your mortgage term.
What are my options for remortgaging if I have negative equity?
Your options are limited if your home’s value has dropped sharply.
Negative equity is when your home’s value would not be sufficient to pay off your outstanding mortgage balance.
The only option is to stop the SVR until property values rise again. This should not take too much time.
How to get a Help to Buy mortgage
Talk to a mortgage broker if you are within two months of your Help to Buy loan deal expiring.
They will guide you through the process and ensure your remortgage application goes as strong as possible.
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