Help to Buy remortgages
As of the 1st April the Help to Buy: Equity Loan Scheme (England) (HTB) will have been available for 5 years. Designed to help buyers get on or move up the property ladder, and often making the property more affordable, the scheme requires customers contribute a minimum 5% deposit, whilst the Government lends them up to 20% of the property price, and a mortgage is used for the remainder.
The Government loan has no repayment charges for the first 5 years; however your clients who used this scheme in 2013 will now be facing additional costs.
What are the charges for my clients who haven’t repaid the loan?
If your client hasn’t repaid the Government loan in the first 5 years of owning the property, they’ll now have to start paying interest at a rate of 1.75% of the amount they borrowed when they purchased the property. This will rise annually by any increase in the Retail Price Index plus 1%.
Example:
A £200,000 property purchased with a government equity loan of £40,000.
The below table which is set out in the Government’s Help to Buy Buyers Guide demonstrates what your clients costs are likely to be on an annual and monthly basis for the first 10 years of their mortgage. These fees are in addition to the repayment of the loan.
Start of year | HTB equity loan | Estimated RPI %* | Interest Fee % | Annual fee and management fee | Estimated monthly payment |
1 | £40,000 | 6% | 0% | £12 | £1 |
| 2 | £40,000 | 6% | 0% | £12 | £1 |
3 | £40,000 | 6% | 0% | £12 | £1 |
| 4 | £40,000 | 6% | 0% | £12 | £1 |
5 | £40,000 | 6% | 0% | £12 | £1 |
| 6 | £40,000 | 6% | 1.75% | £712 | £59 |
7 | £40,000 | 6% | 1.86% | £756 | £63 |
| 8 | £40,000 | 6% | 1.97% | £800 | £67 |
| 9 | £40,000 | 6% | 2.08% | £844 | £70 |
| 10 | £40,000 | 6% | 2.21% | £896 | £75 |
*The average RPI in 2017 was 3.6%.
How could remortgaging help my client?
Like for like remortgages – Clients who don’t want to take any additional borrowing could save money on their monthly repayments by reviewing their mortgage to ensure they’re on the best possible rate. In addition, equity growth through mortgage repayments and house price growth may mean they’re eligible for a product at a lower LTV.
Partial/Full Equity Loan Repayments – For clients, who wish to minimise, or avoid their monthly equity loan payments, can remortgage to take additional mortgage finance to repay either some, or their entire equity loan. This doesn’t always mean that their monthly payments will increase. As with a like for like remortgage, equity growth through mortgage repayments and house price growth may mean they’re eligible for a product at a lower LTV.
How can we help?
We currently have a dedicated HTB purchase and remortgage range that includes 2 and 5 year fixed rates as well as cashback options. We were also the first lender to accept remortgage applications from Help to Buy equity borrowers and have a wealth of experience in this area.
Remortgaging couldn’t be easier – for more information why not give your dedicated Business Development Manager a call?
