History of Help to Buy
The Help to Buy equity loan scheme ran from 2013 to 2023, helping over 350,000 households buy newly built homes. Buyers could purchase with just a 5% deposit, with the government lending up to 20% of the property value (40% in London) as an equity loan, interest-free for the first five years. This made homeownership accessible to many who couldn't otherwise afford the deposit required.
The scheme closed to new applications in October 2022, with all completions required by March 2023. However, hundreds of thousands of homeowners still have Help to Buy equity loans, and understanding your options as a Help to Buy borrower is crucial for managing your finances effectively.
When Equity Loan Interest Begins
Help to Buy equity loans are interest-free for the first five years. After that, interest charges begin at 1.75% of the loan amount annually, increasing each year by the Consumer Price Index (CPI) plus 2%. These charges are in addition to your mortgage payments and can add significantly to your monthly housing costs.
For many Help to Buy borrowers, the fifth anniversary of their purchase marks an important decision point. Before interest kicks in, you might consider repaying part or all of the equity loan through savings, remortgaging to release equity, or accepting the ongoing interest charges if they're manageable within your budget.
Remortgaging with Help to Buy
You can remortgage your main mortgage while still having an equity loan in place - you don't need to repay the government loan to switch mortgage deals. Many Help to Buy borrowers remortgage when their initial fixed rate ends, just like any other homeowner. The equity loan remains as a second charge on the property.
However, if you want to borrow more through remortgaging (for home improvements, for example), this becomes more complex. You'd need permission from Homes England, and the additional borrowing sits behind both your new mortgage and the equity loan, making some lenders cautious.
Repaying Your Equity Loan
You can repay your Help to Buy equity loan at any time, either partially (minimum 10% of current property value) or in full. To repay, you need a valuation from a RICS surveyor - the amount you owe is calculated as a percentage of your home's current value, not the original purchase price. If your home has increased in value, you'll owe more than the original loan amount.
Many homeowners remortgage to raise the funds to repay their equity loan, especially if their property has gained value and they can now access better LTV rates. This consolidates your debt into a single mortgage payment. Our brokers can explain your options and search for remortgage deals that allow equity release for this purpose.