As of April, thousands of Help to Buy homeowners will have started to pay interest on their Government-backed equity loans, with many more due to do so over the next few years.
Remortgaging to pay off the equity loan makes sense, but with more and more lenders creating specialist Help to Buy deals, picking the best option can seem like a minefield.
We take a look at Yorkshire Building Society’s new ‘next step mortgage’, available exclusively to Help to Buy borrowers, to see how it stacks up.
Many Help to Buy homeowners have started to pay interest on their Help to Buy equity loans
What is Yorkshire Building Society offering?
For borrowers repaying the Government’s equity loan in full, the Yorkshire Building Society is offering a two-year fixed rate of 2.05 per cent at 90 per cent loan-to-value.
This mortgage has a product fee of £495 but comes with a range of additional features, such as free valuation, free legals and £150 cashback.
Alternatively borrowers with larger deposits could opt for a two-year fixed rate of 1.77 per cent, which is available for homeowners requiring 75 per cent LTV. This mortgage has a £995 fee.
Other mortgages in the society’s next step range include a five-year fixed rate of 2.24 per cent at 75 per cent LTV with a £995 fee, a two-year fixed rate of 1.87 per cent at 85 per cent LTV with a £995 fee, a five-year fixed rate of 2.29 per cent at 85 per cent LTV with a £995 fee, and a five-year fixed rate of 2.69 per cent at 90 per cent LTV with a £495 fee.
Janice Barber, mortgage manager at Yorkshire Building Society, said: ‘Paying off the Help to Buy equity loan could save homeowners from paying additional interest and management fees, and remortgaging could ensure they benefit fully from any future equity in their property.’
How does it compare?
Critically, this deal cannot be used pay down only part of the equity loan, known as ‘staircasing’.
The society’s website makes it very clear that ‘this deal is not for you’ if any of the Government’s equity loan will remain unpaid after you remortgage.
Aside from the free legals, there is little to separate this from a normal mortgage.
And the society’s flagship 90 per cent mortgage is nowhere near the cheapest on the market at 2.05 per cent.
HSBC has a two-year fix at 90 per cent loan-to-value at 1.79 per cent with a £999 fee and free basic legals, and Atom Bank has a two-year fix at 90 per cent loan-to-value at 1.86 per cent with a £900 fee and free basic legals.
Remortgaging a property with a Help to Buy equity loan means paying a £115 admin fee to the administrators of the Help to Buy scheme.
You could end up paying a bit more each month, as the interest on the equity loan is only 1.75 per cent, lower than most mortgage deals out there. However, rates are historically low even for loan-to-values up to 90 per cent, so now is a good time to lock in.
On top of this, if you expect your home to rise in value in the future, the sooner you pay off the equity loan the better, as it will grow with the price of your property.
You can use This is Money’s mortgage finder tool to find the best deals out there.
How does the Help to Buy scheme work?
Help to Buy is a government scheme offering both first-time buyers and home movers an equity loan of up to 20 per cent, or 40 per cent in London, to help them buy a new build property.
This means that buyers must put in a 5 per cent deposit, to secure a 75 per cent loan-to-value mortgage, with the equity loan making up the rest.
In London, buyers can put in a 5 per cent deposit and secure a 55 per cent loan-to-value mortgage.
Almost 150,000 households have taken advantage of the Help to Buy equity loan scheme
The government scheme is designed to make buying more affordable as the lower the loan-to-value, the lower sum borrowed and the mortgage rates, and therefore monthly repayments should also be lower.
The catch is that after five years, you must start paying interest on the loan.
Because it’s an equity loan, the government will also own a share of any rise in the value of your property. This means the loan grows as your property grows in value.
If the property value drops however, the size of the loan will drop with it.
As of April this year, early adopters of Help to Buy have started making their monthly payments.
These payments are made up of 1.75 per cent interest on the loan, which rises each year by the Retail Price Index plus another 1 per cent.
I’m looking to remortgage but I have a Help to Buy loan, what should I do?
Whenever you come to remortgage it usually pays to have a look at a few different mortgage providers 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.
It is always a good idea to seek independent financial advice while making this sort of decision.
Lastly, you can find This is Money’s guide to remortgaging with a Help to Buy loan by clicking here.