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Help to buy equity loan scheme – buying out your equity loan

You can re-mortgage to pay off your Help to Buy Equity Loan

You can buy back half the equity loan, or all of the equity loan, and you can do it with a standard mortgage product.

Remember, your equity loan buyback cost is based on the value of the property today as assessed by your Help to Buy Agency.

Buying out your equity loan scheme example

Original Help to Buy Purchase

  • Original Price £300,000
  • Cash Deposit £15,000
  • Equity Loan £60,000
  • Mortgage £255,000

Buying out Help to Buy Equity Loan today

  • Current value £320,000
  • Mortgage Balance £222,000
  • Equity Loan Buyout £64,000
  • Re-mortgage required £286,000 (£222,000 + £64,000)

Buying out your Equity Loan – how it works

When you bought your property under the help-to-buy equity loan scheme, the Government would have retained a share of the value of your property (known as equity) of up to 20% (up to 40% in London boroughs in London under London Help2Buy).
You have taken an equity loan against the Government’s share at zero rate interest for the first five years, from year six you pay interest at a rate of 1.75%, increasing by RPI +1% each year.
To buy the help-to-buy equity loan out you need to arrange a valuation from an RICS Valuer. That valuation will determine the cost of buying out your Equity Loan (20% of that value – or 40% in London).

How the equity value builds

The Help to Buy equity loan fees are not the major expense in terms of you finally owning your property, it is the Government’s share of the equity that can get expensive in the long run.
Property bought for £200,000 in June 2017 would be worth £257,608 in June 2022 based on average house price rises in the UK (source Nationwide house price index).
As the help to buy equity loan scheme, 20% value of your property held by the Government and worth 40,000 on purchase is therefore worth £51,521.
In other words, the cost of acquiring full ownership of your property has risen by £192 per month over the two years.
In some parts of the Country, this cost can be particularly aggressive.
For example, the same £200,000 property bought in Wales in 2017 would be worth £281,464 in 2022
The cost of acquiring this property in full has therefore risen by £16,292 or £271 per month over the two years.
As you can see, in a rising market, the sooner you require the full value of your help-to-buy property, the less expensive it will be.
Under the help-to-buy equity loan scheme you can re-acquire the 20% equity share of your property in 10% lumps to obtain full ownership into stages.

Planning to buy back your equity

When you seek to buy out the government equity share of your property you need an official valuation done on the property via your local help-to-buy agent. This confirms the current value of the government’s share so that you know how much you need to raise to acquire full ownership.
You remortgage the property with a suitable lender to settle your current debts and buy out the Government.

Mortgages to buy out your help to buy equity loan

It may be that your current mortgage provider will provide you with the extra funds to acquire full value of your property. However, this cannot be relied on.
Often your existing lender will not offer an attractive deal on the extra funds required. Some lenders will limit the loan to value that you can remortgage to as there is a reluctance in the market to allow remortgage to pay off secured loans.
It is worth therefore considering the whole of the market when remortgaging to pay off your equity loan and acquire the full value of your property.

History of the scheme

In his Budget statement of 20th March 2013, Chancellor George Osborne announced basic details of the new Help to Buy scheme to be introduced by the Government to provide extra support for homeownership.

There were two elements to the scheme.

Help to Buy Mortgage Guarantee Scheme

The Help to Buy mortgage guarantee scheme was designed to assist those with small deposits looking to purchase both new and existing properties.
The idea of the mortgage guarantee scheme was to increase the supply of higher loan-to-value mortgages by providing a Government guarantee to lenders who wished to offer mortgages of between 80% and 95% loan-to-value. The scheme ran for three years from October 2013.

Help to Buy Equity Scheme

From April 1st 2013 until 31st October 2022 applications under the Help to Buy Equity Loan scheme provided an equity loan of up to 20% (40% under London Help to Buy in London Boroughs) of the purchase price of a new build property. The Help to Buy loan is repayable once the property is sold.
The maximum home value was £600,000. The equity scheme could not be used on properties other than selected newly built homes nor for buy to let, or second home investment.

London Help to Buy

London Help to Buy worked in the same way as the standard Help to Buy Equity Loan Scheme, where the first-time buyer put down a minimum 5% cash deposit on a newly built property, and obtained an initially interest-free Government loan for a proportion of the property, with a residential mortgage on the remainder.

Whereas, under a usual Help to Buy Equity Loan purchase outside of the Capital, the interest-free loan offered 20% of the purchase price, this was extended to 40% of the purchase price for London Help to Buy.
This means that the first-time purchaser in a London Borough can put down a 5% cash deposit, borrow 40% interest-free via the scheme, and obtain a mortgage for just 55% of the purchase price.
Under the London Help to Buy Scheme, the mortgage requirement is just £330,000 and the purchase is theoretically in reach for first-time buyers earning £73,000.

How the Help to Buy Equity Scheme Worked

Under the help-to-buy equity loan scheme borrowers enjoyed the benefit of an interest-free loan of up to 20% of their purchase price for five years. (40% in London)

In year six interest is charged on the equity loan at a starting rate of just 1.75%. This interest-free equity loan meant buyers needed to put in just 5% cash leaving leave a mortgage requirement of as little as 75% of the purchase price of the new property. (55% in London)