I bought my property in November 2015 with a Help to Buy 20 per cent shared equity loan and since then, the value of my home has gone up to £365,000.
My current mortgage deal was for £211,000 and will come to an end in November 2018.
If possible, I would like to borrow more when I remortgage so I can pay back 10 per cent of the shared equity loan.
Do I need to get a solicitor involved or is it all organised through my lender?
Siobhan, via email
The Help to Buy equity loan scheme was introduced in April 2013
Sarah Davidson, of This is Money, replies: Thousands of people who took advantage of the Government’s Help to Buy scheme are coming to the end of their five-year mortgage terms and face having to start paying interest on their equity loans.
Remortgaging to a slightly bigger loan can make financial sense as the lower the equity loan, the smaller the future share of any growth in the value of your home will be taken by the Government when you come to sell.
However, there aren’t too many lenders that are comfortable with borrowers paying back just part of the Help to Buy equity loans – typically they want you to keep it on at 20 per cent or remortgage and repay the whole thing.
Depending on which lender you’re with currently, you might find that your options are limited.
Whenever you come to remortgage it’s generally a good idea to have a look at a few lenders to ensure you’re getting the best deal.
You can do this yourself either by going directly to each lender or you can use This is Money’s mortgage finder tool which allows you to search for the lenders that offer Help to Buy remortgages.
This will help you identify the lenders that offer this type of loan but you may not be sure if you’ll be accepted until you apply.
In order to avoid disappointment, many borrowers speak to an independent mortgage broker who has access to all the lenders in the market and will be able to recommend the best one for you given your specific financial circumstances.
Some brokers charge a fee for this advice but there are others which will do the search and administration for you for ‘free’. This is because all mortgage brokers are paid a small commission by the lender.
This shouldn’t bias their advice however as they’re legally bound to recommend the best mortgage for you regardless of what they earn.
You will also need to appoint a solicitor to look after the conveyancing that needs to be done as part of a remortgage.
Some lenders offer ‘free legals’ with remortgage deals. This means they appoint their solicitor who represents both you and the lender, which can sometimes result in delays due to these firms being overloaded with work.
Other lenders offer cashback for legal costs. In most cases we consider this a better option for borrowers as it allows you to appoint your own solicitor who works just for you.
To give you a better idea of the sorts of mortgages you could get, we asked David Hollingworth, of mortgage broker London & Country, to give his view.
David Hollingworth of L&C Mortgages: As the property has risen in value it could offer the chance to remortgage and raise additional funds to repay some or all of the equity loan
He said:The Help to Buy equity loan scheme has helped many first and second-time buyers purchase a newly built home since its introduction in April 2013.
The scheme offers buyers of eligible new properties the chance to take advantage of an equity loan from the Government, usually up to 20 per cent of the purchase price but now available to as much as 40 per cent in London.
As a buyer you will have put down at least 5 per cent as a deposit with the remainder made up through the equity loan and a mortgage.
The Help to Buy equity loan does not attract a charge for the first five years but after that interest will be charged, initially at a rate of 1.75 per cent and rising each year by inflation plus 1 per cent.
On the figures provided here it looks like the equity loan would have amounted to around £56,000 and will therefore be in line to cost around £80 per month once the interest-free period comes to an end.
Whilst you are still two years away from that point it’s good to prepare and to recognise that the equity loan isn’t ‘free money’.
It sounds like you have enjoyed some substantial growth in the property value and this will have a bearing on the amount that you need to repay.
The amount repayable will be the same percentage of the current value as it represented of the purchase price. In this case the 20 per cent equity loan would now amount to £73,000.
You can either redeem the equity loan in full or in part, which is often referred to as staircasing. If only a partial repayment is being made it should amount to 10 per cent of the current market valuation, in this case £36,500.
The choice of lender that will offer remortgages on Help to Buy where the equity loan will remain in place is still relatively limited
As the property has risen in value it could offer the chance to remortgage and raise additional funds to repay some or all of the equity loan.
The lender will need to see that the mortgage will be affordable now and remain so in future. You will therefore have to meet the lender’s standard affordability criteria based not only on your current income but also your ongoing committed expenditure.
Even some of the lenders that allow remortgaging with the equity loan in place will not cater for borrowers wanting to staircase
The choice of lender that will offer remortgages on Help to Buy where the equity loan will remain in place is still relatively limited, although there are options from lenders including Barclays, Halifax, Leeds BS, Newcastle BS and Skipton BS among others.
However even some of those that allow remortgaging with the equity loan in place will not cater for borrowers wanting to staircase (pay back part of the equity loan) and it’s only when redeeming the whole equity loan that the range of lenders really expands.
However, there are options from lenders including Barclays, Halifax, Leeds BS and Teachers BS that should enable you to raise capital to repay the 10 per cent chunk.
Be aware that there will be other costs involved including administration fees to the Help to Buy administrator. There will also need to be a valuation conducted to establish the value of the property which will be at your cost.
There will always be some basic legal work required when remortgaging but the additional processes involved will result in some additional work and therefore cost.
Your conveyancer or solicitor should be able to take care of that.
>> Read more on how to remortgage your Help to Buy