If you were one of the many first time or ‘second stepper’ home buyers who took advantage of the hugely successful, Government backed, Help to Buy scheme, it may well be just about now that your interest free term is coming to an end. There are three options available for homeowners reaching the end of this interest-free period on their equity loan. You can try to remortgage, stay put and pay off your loan (or just the interest), or sell up and move somewhere else.
We outline these three approaches below:
1. Remortgage
You could remortgage your current mortgage (the traditional mortgage you took out alongside the equity loan) – this is likely to be one of the most popular options. This could be done in two different ways…
– Remortgage your standard mortgage and keep the equity loan.
– Remortgage to wipe out some or all of the equity loan, meaning you’ll likely end up with a bigger standard mortgage.
Whether or not the remortgaging options above are doable or the best options for you will depend on a number of factors:
Payments will need to be manageable
Can you remortgage your current deal or are you currently within your mortgage term?
Be warned, not all lenders accept customers with a Help to Buy mortgage
Is it worth paying off some or all of the equity loan with a new mortgage?
If you decide to go ahead and remortgage, you’ll have to pay an admin fee of £115 to the administrators of the Help to Buy equity loan scheme. That’s on top of any other fees you may face (such as mortgage fees).
This is complex and would be worth speaking to a professional to help you navigate the mortgage maze and find the best options available to you.
The best thing to do is to check your sums and work out how much remortgaging may cost you and save you –
Contact Chris at Utopia Financial Services on 07505 279603 to discuss the current products available.
2. Stay put and pay off the interest or the loan
Another option is simply to stay put and start paying the interest or to see if you can get enough money together to pay off the equity loan (you’re allowed to repay the loan early without selling your home).
The latter is worth doing if you can afford it, as you’ll avoid interest charges – and get full ownership of your property. Otherwise, the Government takes a slice on sale. It’s particularly worth considering if you think house prices are likely to go up a lot as it means you’ll pay less to the Government as they’ll take the same percentage of the sale price as you opted for when you took out your equity loan.
You don’t have to pay off the whole lot in one go. But rules mean you can only repay a minimum of 10% of the property’s current value – or the whole loan amount.
For example, let’s say you bought a property for £200,000 and its value has risen to £260,000 over the past five years. You took an equity loan for £40,000 – but if you want to repay the full amount, this has now risen to £52,000.
Whether paying off the loan in part or in full, you’ll need to have the outstanding loan amount assessed. This must be done by a RICS surveyor – (RICS stands for Royal Institution of Chartered Surveyors). It’ll cost about £200 for a valuation, but charges vary.
You’ll also pay an admin fee of £200 to pay off the loan. That’s on top of any other fees you face.
3. Sell and move somewhere else
A final option is to sell up, particularly if the property’s price has soared – and bank any profits after the loan is repaid from sale proceeds. This way you’ll avoid paying any interest on the equity loan and you might want to take the next step on the housing ladder, or you might be ready for a change. When you sell, you’ll have to pay back the Government loan in full, worth up to 20% of the sale price (whether its value has risen or fallen).
If you would like to get a valuation of your property contact Osprey Property on 01572 756675
When do I repay the actual equity loan (NOT the interest)?
While you have to start paying interest on the equity loan after five years, you don’t actually have to repay it until you sell up, or at the end of your mortgage term (which is after 25 years or whenever your ‘traditional’ mortgage term finishes) – whichever comes first.
The Government takes the percentage amount you still owe off the sale price. That’s regardless of whether that sum is higher or lower than you originally borrowed – which could come as a shock to those in areas where house prices have soared.
For example, let’s say you bought your property for £200,000, and sell for £210,000. If you originally took out a 20% equity loan, at £40,000, you’d now pay back £42,000 (20% of the sale value) to the Government. However, if house prices drop and your home is only worth £180,000 when you come to sell, you’d only have to pay £36,000 back.