Remortgage to pay off Help to Buy
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Remortgage to pay off Help to Buy
Steven Hargreaves explains how you could remortgage to pay off Help to Buy. Please note that the Help to Buy scheme is now closed to new applications.
Can I pay off my Help to Buy loan by remortgaging?
You can. It’s quite an easy process, really. It isn’t necessarily too technical, but there are a couple of other parties involved.
You might have bought your Help to Buy for £100,000, as an example, and you borrowed £20,000 from the government – the 20% equity loan – and put a 5% deposit down. Whilst you do own that property, the government will also own 20% of it. If the property value goes up to £200,000, they are entitled to 20% of that.
A lot of people prefer to wait for the five years, which is the interest-free stage of the Help to Buy scheme, and then at the end they remortgage to buy the property in full.
The idea of Help to Buy was very good. It often meant that instead of buying a little terraced house or that one-bedroom flat, a First Time Buyer could go the next step up, because they didn’t have to pay that extra 20% right now.
If their income over the five years has increased, they can now buy that house. It’s worked a treat for many clients and got them to the next step of the ladder a little bit earlier.
Is it a good idea to remortgage to pay off debt? What are my remortgage options?
It’s always a good idea while property prices are increasing. As prices rise, the amount that you owe the government goes up by the same ratio. So if property prices go up by 10%, you’re giving the government 20% of that 10% increase. While property prices remain high and keep increasing, it is beneficial to get rid of that 20% debt to the government.
As far as the remortgage is concerned, it’s a case of approaching a new lender and borrowing the amount that you’ve currently got on the mortgage, plus that 20%. We would hope there’s quite a bit of equity in the property by then.
If that house has gone from £100,000 to £150,000, the amount you owe the government has gone up, but you’ve still got 80% of equity in that increase of £50,000.
What happens with Help to Buy after five years?
You start making regular payments towards what you’ve borrowed in interest. They’re not significant and the interest rate is still very low but by remortgaging, you’re getting rid of their 20% share of the property rather than making those monthly payments.
How do I release equity to pay off my Help to Buy debt?
If you bought that house at £100,000, you borrowed £20,000 from the government and put 5% down, you’ve got a £75,000 mortgage. If that property has increased to £150,000 in those five years, using a nice easy example, you owe the government 20% of the new value of £150,000 – which is £30,000.
Your debt has gone up from £20,000 to £30,000, and that’s why a lot of people prefer to pay it off. You would borrow that from the new lender and pay the government off.
You would increase your mortgage from £75,000 to £105,000 and then it’s your house. Nobody else then has a share in it.
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Can you pay off Help to Buy monthly? How much do you pay back on Help to Buy after five years?
It actually depends on which Help to Buy scheme you used. There were a number of schemes, which were all slightly different. It’s a bit difficult to answer on monthly payments because it depends on the Help to Buy scheme that you chose.
You wouldn’t normally pay it off monthly, though, you’d pay it off as a lump sum. You would get a valuation, normally based on an RICS (Royal Institute of Chartered Surveyors) survey of the property.
You would then agree a price with Help to Buy and remortgage to buy that amount out. You wouldn’t usually pay back Help to Buy monthly, because the government wants a lump sum.
Is it worth remortgaging to pay off Help to Buy? What are the benefits of remortgaging to pay off Help to Buy?
The benefit is that it’s your house, because otherwise you own 80% of it and the government owns 20%. If you pay off the Help to Buy element, it’s your house, full stop.
In most cases, it is worth remortgaging to pay off the Help to Buy, and the benefit is that you own your house at the end of the day. If property prices continue to go up and you decide to sell, you get 100% of the increase, not 80% of it.
How can a mortgage broker help? Have you got anything else you’d like to add?
A mortgage broker has access to a lot more products and we can specifically bespoke a mortgage around your circumstances.
Interest rates can differ significantly between one lender and another. Working with a good mortgage broker will help you pick the cheapest deal to fit your circumstances.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
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