The Help to Buy scheme is a welcomed government initiative which has assisted thousands of people to purchase their dream home. You may have taken advantage of the scheme in order to purchase a brand new property which you would have not been able to afford otherwise. You will have paid a smaller deposit and have obtained a mortgage in addition to the Help to Buy loan. The Help to Buy loan will be secured against your property as a second charge.
While the Help to Buy scheme is useful to get you on the property ladder, your circumstances may change and you may want to consider repaying the loan. For example, you will be prohibited from letting out the property unless there are special circumstances and you have consent. Further, after 5 years you will be charged interest on the loan.
In order to repay the loan, you have two options:
If you would like to remain in the property, without the burden of a mortgage and the Help to Buy loan, you will need to look at repaying the loan. This may be as you have saved enough money to pay off the Help to Buy loan. Alternatively, you may have negotiated a re-mortgage to pay off the loan, and put all your borrowing under the umbrella of one mortgage.
If you would like to repay the loan, you will need to contact the Help to Buy Agency and instruct a Solicitor to start the process. As part of the repayment process, the property will be valued and the repayment figure for the loan will be the same percentage of the valuation as that you had borrowed.
For example, if you purchased a property for £200,000 and obtained a 20% Help to Buy loan you would have borrowed £40,000. If the property is now valued at £220,000, you will repay 20% of that which is £44,000.
There may be additional fees for the redemption process to the Help to Buy agent and your Solicitor. If you decide to re-mortgage at the same time, your solicitor will likely charge an additional fee for this service.
Sale of the property
Really the only alternative is to sell the property in order to repay the Help to Buy loan.
In these circumstances, the redemption will work in a similar way. You will pay back 20% of the sale price. In some circumstances, the Help to Buy Agency will require evidence that you have not under-sold the property. There will also likely be administration fees for the redemption of the second charge during the sale of your property.
If you are looking to purchase another property, you will need to consider whether there is enough equity in your home and whether you are eligible for a mortgage without the additional money that you previously had from your Help to Buy loan.
If you decide that you are not in a position to repay the equity loan, bear in mind the interest accrued on the loan after 5 years. You should have been provided with a worked example of how much you are expected to pay back each year in interest, consider whether this is affordable.