Repaying your Help to Buy Equity Loan

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The Help to Buy Equity Loan scheme started in April 2013. This means a lot of people will be coming to the end of their interest-free period this year and may be thinking of repaying their loan.

So, we thought it might be useful to explain the process of repaying a Help to Buy equity loan.

Interest free for 5 years

As you may know the Help to Buy equity loan is interest free for the first 5 years. After this time interest is charged at 1.75% and increases by RPI +1% each year. During your interest free period you may want to start saving towards paying all or part of your loan off so you can repay the loan at the point your interest kicks in. You don’t have to repay your loan at this time, as this can be done at any point from you owning the property, and if you choose not to repay the loan you will just start paying the interest only.

When you come to repay your loan you will need approval from the Mortgage Administrator who will arrange the repayment for you.

Who is the Mortgage Administrator?

The Mortgage Administrator is a company called Target Services Ltd and they have been appointed by the Government to handle the repayment of your equity loan. So once you have completed your house purchase with Help to Buy North West, we then pass all the details of your purchase on to Target who will collect your £1 per month admin fee as well as the interest payments on your loan. When you are ready to repay your loan you will need to speak to Target to arrange this. They have a tariff of charges that you will need to factor in to repaying your loan.

At the time of writing these charges are:

Tariff

Redemption

Staircase

Deed of Postponement (Re-mortgage)

Subletting

Home Improvements

Management fees

Transfer of equity (change of ownership)

Charge

£200

£200

£115

£50

£50

£1 per month

£50

 

These are payable to Target when completing any of the options above, including the repayment of your loan.

So how do you repay your loan? There are a couple of ways for you to do this with the process being different for each. In all cases you will need approval from the Mortgage Administrator and they should be your first point of call.

Redemption

Redemption is the full repayment of your equity loan and there are two ways you can do this:

  1. Repaying your loan when selling your property

If you want to sell your property you will need to pay the loan off in full. The amount you repay is based on the property price at that point in time. So for example, if you took out a 20% equity loan on a £200,000 house, your equity loan will have been £40,000. However, at the time you come to sell your home if the property price has increased you will owe 20% of the new purchase price. So if your home is valued at £220,000 for example, you will have to repay £44,000. Similarly, if your home decreases in value you will owe less.

You will need to get an independent valuation to determine how much your home is worth and how much you will need to repay. This needs to be done by a Royal Institute of Chartered Surveyors (RICS) valuation surveyor. They will value the property and you will need to pay for this to be done. Once you receive your valuation report you will need to provide this to the Mortgage Administrator and they will contact you with the next steps.

  1. Repaying your loan without selling your property

In this scenario you will be looking to repay the loan in full without selling your home or securing another loan against it to repay the equity loan.

Again, you will need to contact the Mortgage Administrator and have a valuation carried out on your home. Once you have provided this to them they will contact you with the next steps.

Remortgage

If you want to repay your loan by remortgaging you may be able to do so if you meet the following requirements:

  • The mortgage term with the new lender must not exceed the unexpired term of your existing mortgage. For example, if remortgaging a 25 year mortgage 5 years into the term, the new mortgage should not exceed 20 years.
  • The new mortgage must be no more than the existing loan with the main lender mortgage. The exception to this is if you are going to use the additional borrowing to repay your equity loan.

You will need to provide the following information to the Mortgage Administrator:

  • A copy of the formal mortgage offer from your new lender
  • Details of the solicitor dealing with the remortgage
  • A Mortgage Redemption Statement from your current Mortgage Lender
  • A copy of the New Mortgage Lenders Deed of Postponement (DOP)

Once you have provided the above documentation the Mortgage Administrator will liaise with your solicitor who will process the required deeds for your transaction.

Staircasing

Staircasing is the partial repayment of your equity loan without selling your property. There are two ways you can do this:

  1. Staircasing without another loan being secured on your property

In this case you will be looking to pay off part of your loan without securing another loan on your home.

There are certain requirements for staircasing which you should be aware of:

  • The minimum amount you can staircase is 10% of the market value of your home (this means that if your equity loan is less than 20% you can only repay in full)
  • You may only staircase in multiples of 10%
  • You cannot staircase if you are in arrears with interest payments and/or mortgage fees

If you meet the requirements you will need to have a valuation carried out and send this to the Mortgage Administrator, along with the percentage amount you want to repay. They will then liaise with your solicitor.

  1. Staircasing by securing another loan on your property

In this case you will be looking to pay back part of your loan by securing another loan on your home with a lender.

The amount you can borrow from another lender is restricted to the amount you will need to staircase. For example, if you are looking to staircase 10% and your property is worth £200,000 you will need to pay £20,000, so the amount you can borrow is restricted to £20,000.

You will need to arrange a valuation on your home and provide a copy to the Mortgage Administrator along with your solicitor details and the amount you want to staircase.

So that covers the various ways of repaying your equity loan – redeem in full, remortgage and staircasing. It’s worth considering all the options available to you and choosing the one that’s right for you.

Top tips to remember! You will need to speak to the Mortgage Administrator, a valuation of your home is required and there will be a fee to pay in all cases.

If you have any further questions about repaying your equity loan please visit the Mortgage Administrator’s website – www.myfirsthome.org.uk