Yes – you can re-mortgage to pay off Help to Buy Equity Loan lending.
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 buy back cost is based on the value of the property today as assessed by your Help to Buy Agency.
Buying out your Equity Loan – Example
Original Help to Buy Purchase
- Original Price £300,000
- Cash deposit £15,000
- Equity Loan £60,000
- Mortgage £255,000
- Mortgage Payments £960 pcm
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)
- New Mortgage Payments £1,205 pcm
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 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 2017 would be worth £218,970 in 2019 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 £43,794.
In other words, the cost of acquiring full ownership of your property has risen by £158 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 the South-East in 2015 will be worth £230,579.
The cost of acquiring this property in full is therefore risen by £6,116 or £255 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 bought property, the less expensive it will be.
Under the help to buy equity loan scheme you can reacquire the 20% equity share of your property in 10% lumps to obtain full ownership into stages. For our example here we consider the practicalities of acquiring the full equity share to achieve 100% ownership.
- Original property price £200,000
- Original equity share £ 40,000
- Your mortgage £150,000
- Your cash deposit £ 10,000
- Property value £231,000
- current equity share £ 46,200 (20% of current value)
- Mortgage balance £140,000
- Your equity £ 44,800
Remortgage to acquire the whole of the property
- Property value £230,579
- New mortgage level £186,200 (81% loan to value)
Monthly costs examples
Current mortgage priced at 3.49% £757 per month
New mortgage priced at 2.29% £816 per month
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 help to buy equity loan and acquire full value of your property.
Buying out equity share on shared ownership
The process above applies equally to shared ownership properties.
If you own a share and rent a share of your home and are looking to remortgage to purchase the full equity we can assist.
Your equity purchase will be based on current market value of the property.