Since the government’s Help to Buy scheme launched, over 350,000 people have purchased a home with support, made up of 83% first-time buyers.
Equity loans through the initiative have totalled £22 million, with properties sold through the programme to the value of £99 billion.
For all the positives, there is a slight complication when you decide to remortgage, either to find a better deal or because your fixed-rate mortgage or tracker product is about to switch over to the lender’s standard variable rate.
Think Plutus explains how remortgages work for Help to Buy properties and the information you need to know before you make any long-term financial decisions.
Remortgaging a Property Purchased With Help to Buy
The quick answer is that you can absolutely remortgage, regardless of whether you used Help to Buy to purchase your property or not.
Mortgage products and Help to Buy governmental support are two different things, and remortgaging should not affect your eligibility or repayment terms.
Standard variable rates are typically the highest interest charges for a mortgage, so it is strongly advisable you look into remortgaging options to avoid seeing your monthly payments skyrocket.
Like any other mortgage, the usual terms will apply. Lenders will need to know how much you want to borrow to repay your existing mortgage and what the Loan to Value (LTV) works out at, which is the percentage of the value you are borrowing vs how much you own.
For example, if your home is worth £350,000 and you have a mortgage balance of £200,000, and want to repay an equity loan of £75,000, the LTV is 78.6%.
Since the UK property market has grown significantly in the last two years, it may be that your home is now worth more than your initial purchase value.
In that case, your remortgage lender will revalue the property and calculate the new loan balance as an LTV against that higher figure.
If you have a 20% equity Help to Buy loan outstanding, then the remortgage might be slightly more complex because you will need to repay that if you decide to sell the property – but there is no reason you cannot refinance.
Approval for Help to Buy Remortgages
You will need to submit a Deed of Postponement application to the scheme administrator before you remortgage a Help to Buy property – your solicitor will normally handle all of this on your behalf and might charge a small additional fee.
Help to Buy charges a £115 fee, and will need to see a redemption statement from the original lender, a breakdown of the remortgage charges, and contact details for your solicitor.
When you remortgage, you might decide to:
- Increase the borrowed amount to repay the loan (depending on the equity you have in the property).
- Borrow exactly the same amount and simply switch from one mortgage to another without borrowing any more or less.
- Pay back some of the equity loan, and continue interest payments – where applicable – on the residual balance.
More details about remortgaging and repaying some, or all of, your equity loan are available through Manage Your Help to Buy pages.
You do not need to pay back your equity loan when you remortgage, but you might wish to, and some lenders will prefer a remortgage applicant who intends to close their Help to Buy equity loan account by refinancing.
Another factor is that Help to Buy loans incur interest from five years onward, which will be calculated into your affordability assessment.
Therefore it is usually wise to pay back the loan if you can, which means you will have a greater choice of remortgage lenders and products.
Remortgaging to Repay a Help to Buy Equity Loan
If you are remortgaging specifically to pay back your Help to Buy loan or need to switch lenders and would like to settle the balance at the same time, you can certainly do so.
You can also repay part of the loan, rather than the full amount, in minimum chunks of 10% of the property valuation.
Borrowers can settle a Help to Buy loan with savings or cash or remortgage to release equity and use the capital for the repayment.
Paying back a Help to Buy loan early is preferable for many homeowners. It means they will not have to worry about settling the account if they decide to sell and will not incur a monthly interest charge on top of their mortgage repayments.
However, a lot depends on your existing mortgage debt, property value, and equity. Higher mortgage values inevitably mean you will pay more per month and overall.
Releasing Equity Through a Help to Buy Remortgage
Lender policies vary, and you can potentially remortgage up to 90% or even 95% of your property value and use the funds to pay back your Help to Buy loan.
The Think Plutus calculator is a good way to estimate what your mortgage payments might look like, including borrowing to repay your Help to Buy debt.
Your property valuation report should be conducted by a valuer accredited by the Royal Institute of Chartered Surveyors, who will verify the current market value of your home, which you will need for the remortgage process.
Remortgaging and Retaining a Help to Buy Equity Loan
If you need to remortgage to avoid moving onto a standard variable rate and do not have the funds or equity to repay your Help to Buy loan, all is not lost.
Not all lenders will accept the application, but some will – we can advise on the best-suited mortgage lenders if you would like further information.
Another route could be to go for a product switch without changing lenders, which can be beneficial because your current lender will not need to repeat the affordability assessment process.
Advice From an Independent Broker for a Help to Buy Remortgage
Before you remortgage a Help to Buy home, there are multiple aspects to consider, such as equity, affordability, interest rates, administration fees, and the remortgage terms.
We always recommend using a specialist, whole-of-market broker to help you navigate the process, choose the right products, or make informed decisions.
As an accomplished private broker with extensive knowledge in Help to Buy and non-standard financing, the Think Plutus team is on hand if you would like assistance.
Many niche mortgage lenders do not offer products directly to the public and only deal with approved brokers on their networks.
The products available are highly competitive, flexible, and normally more favourable than any potential offer from a mainstream bank – which would be less likely to support a Help to Buy remortgage application, whatever the circumstances.
Frequently Asked Questions – Help to Buy Remortgages
The below FAQs answer some commonly asked questions about how Help to Buy remortgages work and the best actions to take.
Can I Remortgage a Help to Buy Mortgage Through Any Lender?
Unfortunately, only a small selection of high street banks offer any kind of Help to Buy remortgage, including Barclays, Halifax and NatWest.
Banks are also not often the most competitive lenders for any non-standard product. Specialist lenders are more suitable for Help to Buy remortgages in most situations since they have a larger range of products and available terms.
How Much Does it Cost to Remortgage a Help to Buy Home?
Remortgages incur fees, although these vary depending on whether you are switching products with the same lender, applying elsewhere, or consolidating your Help to Buy debt into a new remortgage product.
Other costs include legal fees, valuation charges, brokerage, and product fees.
Do I Need Approval to Proceed With a Help to Buy Remortgage?
Yes, if you are moving your mortgage to a different lender, you need to submit a request called a Deed of Postponement to the scheme administrator – your solicitor will usually deal with this on your behalf.