Redeeming your Help to Buy Loan
What is a Help to Buy Loan
A Help to Buy loan was provided under a Government scheme to assist with the purchase of a new build property (the original scheme ran from 2013 - 2021 and has since closed). The aim of the scheme was to assist first time buyers in getting on the property ladder with a limited deposit. Under the Help to Buy Equity Loan scheme buyers could obtain a mortgage with a deposit of 5% (instead of the usual 10%). Buyers could then borrow up to a maximum of 20% (up to 40% in London) through the Help to Buy scheme, interest free for 5 years. From year 6, interest is charged at a rate of 1.75% and rises each year in line with the Consumer Price Index (CPI), plus 2% (however this is limited to 1% if you took the loan before December 2019).
Repaying your Help to Buy Loan
It is a requirement of the Help to Buy Loan that you must repay the loan in full when you pay off your mortgage or sell your Property, or reach of end of the loan term, normally 25 years. However, you can pay off your equity loan in full or pay part repayments at any time.
As interest is charged after the first 5 years, this is when the majority of people look to try and repay part or all of the loan off, usually via re-mortgaging the property.
Repaying your loan via a re-mortgage
Whether repaying the loan in full or part, a repayment calculation is made by the administration team to determine the amount that you need to repay based on the market value of your home at the time of repayment. The market value of your property is set by a Royal Institution of Chartered Surveyors (RICS).
When looking to repay your loan you are first required to obtain a valuation report from a Royal Institution of Chartered Surveyor (RICS), which does have to be paid for by you (i.e. the borrower), which determines the market value of your Property. Below is a link to include the step by step guide and also includes finding a RICS surveyor in your area.
Once you obtain the RICS valuation report this then needs to be sent to Target (HCA) via firstname.lastname@example.org within 5 working days of the date it was issued, who are the Help to Buy Administrators for them to consider. You will also need to submit a repayment application form which can be found here:
You will also be responsible for Targets administration fee, which is currently £200.00. Upon receipt of the RICS valuation report, completed Equity Loan repayment application form and their administration fee, Target will then confirm the amount required to repay the loan.
You will have 3 months from the date of the RICS valuation report in order to pay back the loan. If you have not paid back the loan during the time of the initial RICS report was undertaken i.e. within the 3 month period, then you would need to apply to the RICS valuer for a further "desktop valuation" to extend the original valuation report by a further 3 months (but note that this request for an extension must be made within 2 weeks of the expiry date of the original valuation report).
Repaying your loan via a sale of your Property
The initial steps above also apply when looking to sell your home. You will still have to obtain a RICS valuation report and submit this to Target along with their administration fee and completed repayment form.
There is a useful link from the Government website, which sets out the initial steps to follow :
The important difference when selling your Property is that the repayment figure due to repay the loan is based on either the market value of the Property given in your RICS valuation report or the sale price of your property, whichever is the higher. As an example, if your RICS valuation report valued your Property at £250,000.00 but the sale price of your Property was £260,000.00, and you had a Help to Buy loan of 20% you would be paying back on completion of the sale £52,000.00 being 20% of the sale price, as this would be the higher.
If you are looking to repay your help to buy loan either now or in the near future we hope the above helps. However, if you have any questions then please do not hesitate to contact us.
Associate - Residential Property