How to Remortgage on Help to Buy 2023

July 10, 2023

A Step-by-Step Guide for First-Time Homeowners

If you have purchased a new build home through the Help to Buy: Equity Loan scheme in the UK, have you considered your next steps when it comes to remortgaging? In this guide, we will walk you through the process of remortgaging on Help to Buy, providing you with all the key information you need to make an informed decision.

Understanding the Help to Buy: Equity Loan Scheme

The Help to Buy: Equity Loan scheme was a government-backed initiative designed to assist first-time buyers in purchasing a new build home. It allowed you to buy a property with a deposit as low as 5%. Under this scheme, the government provided you with an equity loan of up to 20% (or 40% in London) of the property value, which remained interest-free for the first five years. The remaining 75% (or 55% in London) is covered through a mortgage.

It’s important to note that the equity loan must be repaid either when you sell the property or at the end of the loan term, which is typically 25 years. The repayment amount is linked to the value of your home at the time of repayment, rather than the original loan amount. This means that if the value of your property increases, the amount you owe on the equity loan will also increase, and vice versa.

How Remortgaging on Help to Buy Works

Remortgaging on Help to Buy follows a similar process to remortgaging a standard property, but there are some additional steps specific to the scheme. Let’s break it down step by step:

Find a suitable mortgage deal

We will compare mortgage options to find the most suitable deal for your circumstance.

Seek permission from Homes England

As the government agency responsible for providing equity loans, you’ll need to obtain permission from Homes England to remortgage. This involves filling out an application form and paying a £200 administration fee.

Get a property valuation

Arrange for a valuation of your property by a Royal Institution of Chartered Surveyors (RICS) surveyor. This valuation determines the current value of your home and the amount remaining on your equity loan. You’ll be responsible for the valuation fee, which varies depending on the size of the property and the surveyor.

Decide on your equity loan repayment

Consider whether you want to repay some or all your equity loan during the remortgaging process. If you choose to repay a portion or the entire loan, you’ll need to borrow additional funds from your new mortgage lender. Keep in mind that repaying the equity loan in increments of 10% is required, based on the current value of the property rather than the original loan amount.

Weighing the Benefits and Drawbacks

Before deciding to remortgage on Help to Buy, it’s essential to consider both the benefits and drawbacks associated with the process. Here’s a breakdown of the potential advantages and disadvantages:

Benefits of remortgaging on Help to Buy

Potential savings

Remortgaging can help you secure a lower interest rate, resulting in reduced monthly mortgage repayments and potential long-term savings. By obtaining a lower interest rate, you can reduce your monthly payments and free up funds for other purposes.

Debt reduction

Remortgaging on Help to Buy provides an opportunity to repay some or all your equity loan. By incorporating your equity loan repayment into your new mortgage, you can gradually reduce your overall debt.

Flexibility in mortgage terms

Remortgaging allows you to explore different mortgage terms and options. This flexibility can provide you with greater control over your homeownership journey.

Drawbacks of remortgaging on Help to Buy

Additional costs

Remortgaging on Help to Buy incurs various costs that need to be considered. These may include valuation fees, administration fees, legal fees, and mortgage fees. It’s important to factor in these expenses when assessing the financial feasibility of remortgaging and determine if the potential savings outweigh the costs.

Affordability considerations

Lenders consider both your mortgage and equity loan when assessing affordability. Borrowing additional funds through remortgaging can be challenging, as your equity loan impacts your eligibility and borrowing capacity.

Potential loss of future property value growth

Repaying a portion or the entire equity loan during the remortgaging process means forfeiting any potential future growth in the value of your property. As the repayment amount is directly linked to the current value of your home, you may miss out on the opportunity to benefit from future house price growth.