A Guide to Remortgaging to Pay Off a Help to Buy Equity Loan

The Help to Buy scheme helped many first-time buyers get on the property ladder. It had many advantages, but after a while, a lot of people who took out their mortgage through it before the deadline look to remortgage their property to help pay off their equity loan.

In this guide you’ll find out how remortgaging can help you pay off your equity loan, how you can pay off your loan, how to find the best remortgage rates, and more…

Can you remortgage to pay off a Help to Buy equity loan?

Yes, you can! If you know how – and get the right advice along the way – it can be a relatively straightforward process. This is possible by releasing the equity you’ve built up from paying your mortgage each month and using it to settle the outstanding debt on the equity loan.

If you have a Help to Buy mortgage, it is likely you’ll have signed up to an initial fixed term – usually between 2 and 5 years. After this, you’re free to shop around.

This means both your current lender and other providers will have products you can switch your mortgage to.

Why people do this

After five years, the equity loan is no longer interest-free, so many homeowners will want to consider all the potential alternatives as soon as possible, and a remortgage could be the answer if you don’t have other sources of capital readily available.

The interest rate on the equity loans starts at 1.75% in your sixth year. After this, it rises in line with the Retail Price Index (RPI) measure of inflation plus 1% each year. This means the sum you owe, and your repayments, could increase very sharply.

Therefore, a lot of people who purchased Help to Buy properties end up looking to remortgage after the initial five years.

This can help them free up the capital to pay off the equity loan, leaving them only the mortgage repayments to worry about. A lot of people find this a more attractive option.

How to release equity to pay off your Help to Buy debt

Once you know what you need to do, it should be a straightforward process.

Follow the below steps to get your application off to the best start.

1. Speak to a broker – This is the best place to start. Speaking to a broker early on in the process means they can help you complete all the following steps and make sure you don’t make any mistakes along the way.
2. Get a valuation – You need to know how much a surveyor thinks your property is worth. This will establish much you owe the government. Remember, the loan is a percentage of the value of your home.
3. Speak to a lawyer – You’ll need a solicitor or conveyancer to deal with all the legal aspects.
4. Complete any paperwork – You need to complete a Loan Redemption Form. You can get this from the housing association that handles your Help to Buy. You will also need to pay an admin fee at this point.
5. Redemption letter – This will give you an estimated repayment figure.
6. Sign off – Agree the terms to your new remortgage and let your lawyer know you are ready to repay the loan.
7. Pay the money – Your solicitor will transfer the money you owe and your equity loan will be cleared.

Types of remortgage: options available

When you remortgage you can choose to either stay with your existing lender or switch to another one. This won’t affect your ability to pay off the equity loan.

When making this decision, a broker could prove to be a great asset as they can access the whole of the market and may well be able to help you find a better lender for your personal circumstances than your current provider.

At this stage you have three main options available:

Remortgage to a higher LTV

You can take out a mortgage with a higher LTV to repay your equity loan. While you’d be taking on a larger mortgage, you may find this is more beneficial than keeping the equity loan.

The main benefit will be that you get to keep any future growth in your home’s value. As the equity loan is a percentage of your property’s value, if house prices increase so does the amount you owe.

Instead, if you increase your mortgage to clear the equity loan, you will benefit from any future increases in your home’s value.

Pay off the loan from savings

If you can afford to, you can pay off your equity loan from savings. Doing this before you remortgage at a lower LTV. This means you may be able to access lower interest rates and better deals.

Use money from the property

If your home has increased in value you may be able to use the equity your home has built up to pay off your loan. You will have made a number of mortgage payments, meaning you own a greater percentage of your property.

If you combine this with the increase in value, you may well be able to remortgage at the same LTV as you had originally.

Can you remortgage with an equity loan still in place?

Yes you can. But after 5 years of property ownership, you will begin to pay more and more of the interest on the loan until you have fully paid it off. You will have to make equity loan repayments in addition to your monthly mortgage payments.

There is a £115 admin fee – payable to the government – for handling your remortgage transaction. This rises to £200 if you want to remortgage and pay off your equity loan in full.

Finding the best remortgage rates

A range of well known banks and building societies offer remortgages for this purpose. The rates on offer vary between lenders. The table below provides an illustration of some of the best remortgage rates available currently (May 2023).

The rates quoted above were correct at the time of writing (May 2023) and are subject to change at any time at the lender’s discretion. Speaking to a mortgage broker is the best way to keep track of the rates available at any given time.

Eligibility requirements

There are a number of factors that will affect your eligibility for remortgaging a Help to Buy property.

You must have enough equity in your property

Not only do you need enough equity to cover the deposit requirements, which are usually 90%, you’ll need to have enough left over to cover the outstanding equity loan balance.

This obviously means that you cannot be in negative equity.

You are in negative equity when your home has decreased in value or the interest on your loans has increased the overall debt outstanding so much that your home is now worth less than the total of what you owe on your repayment mortgage and equity loan.

If you are in negative equity, you won’t be able to remortgage and borrow more money.

You must be up to date with your equity loan payments

You cannot remortgage if you’re in arrears.

You must make sure you pay off anything you owe the government in full, or contact them to set up a payment plan before you try to remortgage.

Employment type

Traditionally, mortgage lenders were much more inclined to lend to those in full time employment.

Self employed individuals would find it much harder to be approved.

Lenders have got better at understanding the needs of the self-employed recently but it can still be harder, particularly if you’re recently self-employed and can’t prove your long-term profitability.

If you’re self-employed, the way you pay yourself may affect the amount lenders are prepared to lend to you.

Some lenders determine your affordability based on the salary you pay yourself and any dividends distributed to company directors.

Others are more generous and also take profit retained within the business into consideration. This usually results in a much larger loan being potentially available to you.

Other factors affecting eligibility

Like all mortgages, there are other factors that will impact your eligibility.

These include:

• Credit history – Having a good credit history will boost your chances of approval significantly. Providers tend to be much more wary of lending to individuals who have defaulted or missed credit payments in the past.
• Your age –  Most lenders have a minimum and maximum age they are prepared to consider. The minimum age is usually 21, while the maximum age can vary from around 65 to 80 years old.
• Your income – Lenders will generally have a minimum income requirement for potential borrowers. This is usually around £25,000 a year, but can be as high as £40,000 depending on the provider.

Other things to consider about the equity loan

There are certain expenses that you will have to budget for when paying off your loan. First, you will have to pay for the updated valuation, even though it is a requirement.

There is also a fee (£200) payable to the government for paying off the equity loan. This may not be a large sum in the scheme of things, but it is important not to forget about the small expenses when remortgaging.

Get matched with a Help To Buy remortgage expert

While the process is straightforward, you have to ensure you follow all the steps correctly to get your remortgage approved so you can pay off your equity loan. Doing it yourself leaves room for error and may also mean you miss out on certain deals because they are only available to brokers. Instead, it is also best to speak to a specialist.

This is where we can help. The brokers we work with have experience helping people get approved for remortgages on Help to Buy properties.

So, give us a call on 0808 189 0463 or make an enquiry and we can arrange for a free, no obligation chat with an advisor we work with straight away.