A Help to Buy loan is a shared equity loan. Until the loan is paid in full, the Government retains a share of the property, and its value. There are many reasons why people would look for a help to buy remortgage of their property and this guide looks at remortgage Help to Buy options.
When You Can Remortgage Help to Buy Loans and Borrow More Money?
There are a number of reasons why someone would remortgage their property such as:
To pay back all of the equity loan
To pay back some of the equity loan
To make significant/structural alterations to the property, with permission
To have funding to undertake an equity transfer
An equity transfer is when the ownership of the property is changed, from sole to joint ownership for example, or vice versa.
When is the best time to remortgage a Help to Buy loan?
Given Help to Buy loans are free from interest for the first five years, it makes sense to pay off the loan, if possible, during this time. If you don’t, there is interest to pay, and as the rate rises with the Retail Price Index, this can become a significant figure. Therefore, some people might decide it is best to remortgage in the initial 5 year time-frame. Additionally if you took out a 2 year or 5 year fixed rate you may choose to explore your help to buy remortgage options when your fixed rate is due for renewal, and therefore avoid any early redemption fees if remortgaged during the initial fixed rate period.
Remortgaging a property that has a help to buy loan does take longer than a standard remortgage, so best to start the process early. Good advice is explore your remortgage options 6 months before your rate is due to expire.
Help To Buy Remortgage Options
If you have come to the end of your initial rate period you have a few options on what to do next:
You could remain with your current lender and switch to a different rate – This is known as a Product Transfer.
You could remortgage to a new lender who is maybe offering better terms and keep the equity help to buy loan in place.
You could remortgage and capital raise to pay off or partially redeem the equity loan.
If your circumstances have changed since you purchased the property, for example you may now have bad credit registered such as defaults or CCJ’s, or have changed to being self employed and maybe a contractor for example, your mortgage adviser can advise you on your options.
Can you Remortgage to Pay Off a Help to Buy Loan if you have Negative Equity?
When the current value of the property is less than the money owned on the repayment mortgage and the equity loan, the homeowner is in negative equity. In this situation, the vast majority of property owners will not be able to remortgage and capital raise to clear the equity loan on their property.
Of course, it is advisable to speak with a specialist mortgage broker who has experience in remortgaging Help to Buy property. An experienced professional is likely to have come across this situation before and they will be well placed to give you advice on what to do next.
How Much do I Need to Pay Back to Clear the Help to Buy Loan?
This depends upon how much you initially borrowed. The amount you owe is linked to the current value not the amount you initially borrowed, so if for example, you bought the property for £250,000 and took out a help to buy loan of 20% – this would be £50,000. If this property is now valued at £300,000, 20% of this new value would mean you need to pay back £60,000.
What are the Steps to Remortgage and Consolidate my Help to Buy Charge?
Here we have broken down the steps that need to be taken:
Speak with a mortgage broker who can advise you on a suitable remortgage factoring in the help to buy loan which is being consolidated.
Get an Agreement in Principle done along with a formal illustration detailing all the associated costs.
Submit an application. A valuation will need to be done and the lender will complete all the required underwriting and then issue a mortgage offer. You should also instruction a solicitor at this stage. It is recommended working with a solicitor who is familiar with the process of redeeming a help to buy loan.
Your mortgage offer is issued.
You need to arrange for a RICS surveyor to value the property and this valuation report is sent to the help to buy administration agent along with ‘Form B’ and an admin fee of £200. The help to buy team will then issue a redemption letter to your solicitor.
With the mortgage offer and the help to buy redemption letter your solicitor will now be able to arrange a completion.
Please note the property valuation report is valid for three months, from the date when the report was produced. If the remortgage process isn’t completed within three months, the homeowner must request a letter from the surveyor stating the valuation is okay to be extended for another month.
If this additional month comes and goes without the remortgage process concluding, the homeowner will be instructed to possibly arrange another valuation to be done.
Yes – There are lenders that offer mortgages where the property is rented out through a platform such as Airbnb. Not all buy to let mortgage lenders allow properties to be rented out on Airbnb, so getting the right mortgage is important.