Remortgage To Repay Help To Buy
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Remortgage Help to Buy
All about remortgaging a Help to Buy loan with Adam Messer.
Can you remortgage with Help to Buy? How does it work?
Yes, you absolutely can – and this is one of my favourite things to help with. There is nowhere near enough information about Help to Buy and what happens once you’ve done it.
It’s not available any more for new buyers, but when it was, builders and developers were very keen to push people towards Help to Buy, saying it gave you free money. It’s certainly not free money – and now we find that most people don’t fully know what they need to do with their Help to Buy equity loan. It’s really important to educate people on it, and most importantly, how to get it paid off.
In terms of remortgaging, you can do it without paying off the loan, but not many lenders will let you do this. If your fixed rate deal comes to an end, you might not find the best deal with your current lender – but if you don’t want to pay off Help to Buy yet, you can move lenders and keep Help to Buy in place.
But it’s really important to pay off Help to Buy or a chunk of it as soon as you can – and we can do that by remortgaging to a new lender and borrowing more money to pay back the loan.
When is it a good time to pay off a Help to Buy loan?
As soon as you possibly can. Five years is about the right time because most people took a five year fixed deal – that was the norm. It’s not now, with rates as they are, but it was then.
Once you get to the end of your five years, or perhaps four years if you chose a two-year deal twice, hopefully your house has gone up a bit in value. With a new build the value goes down a little bit first because it’s not brand new any more, but five years on, it should have gone up in price.
We were all expecting house prices to dip during Covid but they didn’t – far from it. They shot up. Now, your house should be worth more than when you bought it. That gives us extra equity we can use to repay Help to Buy.
How long does it take to remortgage with Help to Buy?
When we talk about remortgaging at the moment, we talk about doing it six months early. That’s really important at the moment with interest rates going up. We need to remortgage early so that your new mortgage is ready and waiting for you, and you’re protected against any more rate rises. A mortgage offer will last six months.
When you repay a Help to Buy, you need a valuation from a surveyor. We can help people find a surveyor. The Help to Buy office needs to know how much you need to repay them. But that valuation will only last three months, so we have to do a two-stage process.
First we make an educated guess at what your house is worth, and we do your mortgage application based on that to secure your rate now. We can make some tweaks to that before you complete. That offer lasts six months.
Then, with three months to go, we get the Help to Buy valuation done and sent in, and Help to Buy tells us how much we need to repay. It’s 20% of the property value, unless you’re in London where it could be up to 40%. That’s the thing to remember: you borrowed 20% of the property’s value – not an exact sum of money.
We get everything done with three months to go and it all completes at the right moment. So it can be up to a six month process – but it can also be done faster. With Help to Buy there are a few steps – I send them a form, they send some bits back, they talk to the solicitor and, as with any government organisation, these things don’t happen overnight. It’s no good expecting it to be done in two weeks, it can take a while. We try to do it as early as we can so that evaluation won’t expire.
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Do you need a solicitor to remortgage with Help to Buy?
Yes, you do. Your solicitor will deal with all the money as you move from one lender to the next. The new lender will send the solicitor the money to pay off the old mortgage. That’s the normal remortgage process.
The solicitor also transfers over the deeds and does all the paperwork in the background. A basic remortgage doesn’t cost much at all and can often be free. Most lenders will give you a free legal service or enough cash back to cover your own solicitor – or ours if we’re helping you. Either way, it doesn’t cost you anything.
With Help to Buy repayment, we need that same solicitor to handle the money from the new lender, pay off the old lender and pay off Help to Buy. They’ll swap the deeds over and make sure everyone knows what’s going on.
So yes, we do need a solicitor and they’ll charge probably £200 to £300 to do that additional Help to Buy work – the remortgage bit will pretty much be free.
Is remortgaging the best way to pay back Help to Buy? Are there other options?
You could just do it with cold, hard money. You might win the lottery or receive a gift from your family – if you’ve got a lump sum of money you can do it that way.
You could potentially stick with your existing lender and do what we call a Further Advance, where you just borrow more money from the same lender.
You might decide to sell the property to pay off Help to Buy, but if you move and buy another property, Help to Buy isn’t portable – you can’t take it to the new house. It has to be paid off to enable you to move. But remortgaging is the way that most people do it.
How much does it cost to pay back Help to Buy?
It doesn’t actually necessarily cost much. There are no penalties or things like that. They do have a small admin fee, but that’s less than £100.
We just mentioned the solicitor, which is another couple of hundred pounds. We also need a valuation and they’re going to charge a little bit too. It depends where you are in the country and who you use, but I would expect it to be £200 or £300.
So it’s not without its costs, but there’s no penalty if you pay it off early. It’s not like a mortgage where you have an early repayment charge. You can pay it off whenever you like.
The costs I’ve mentioned are upfront costs. We can add a little bit more borrowing onto the mortgage to reimburse you, but you can’t add them to the mortgage like you would do with an arrangement fee, for example. You will need that money available at the start.
How can a mortgage broker help?
This is quite a complicated process. There’s a few moving parts and it’s important to get the timing right. You could do it yourself if you wanted to – and if you do, here’s a tip: the valuation from your Help to Buy surveyor and the one for your new mortgage application don’t need to match.
That’s the number one hint for anyone repaying Help to Buy. Speak to your surveyor and let them know what you’re doing and ask them to value your property as low as they can. No one’s going to lie. We’re not encouraging any sort of fraudulent activity here. But when you get your Help to Buy valuation, your surveyor will use ‘comparables’ – similar properties that have sold within the last six months, ideally within half a mile.
The chances of them finding a recently sold property that meets all those requirements is quite slim, so they have to use similar properties – maybe the same amount of bedrooms but a different layout. We just need them to use the smaller example to give us a feasibly low figure.
With the mortgage lender, it’ll be a different surveyor and a different day. We can ask them to give a slightly higher figure. They will never be hundreds of thousands of pounds different, but if it’s £10,000 different that will help. It means you pay back £2,000 less on your Help to Buy Loan and helps your Loan to Value – the percentage of the property’s value that is mortgaged.
The higher the value of your property, the better your loan to value and the better rates you could get. So it’s a complex process. There’s different timings, different people to speak to and different forms to fill in. You’re much better off getting some professional help to do it. With this one particularly, get expert help on the process.
Think carefully before securing other debts against your home.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up with your mortgage repayments.
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Remortgage to pay off Help to Buy (Part 2)
Adam Messer continues the conversation on remortgaging to pay off Help to Buy.
Should I remortgage to pay off my Help to Buy loan?
Definitely. Help to Buy is one of those things that’s a really good idea at the start – and it is – I had one myself. But it can get quite expensive. The more your house value goes up and the longer it goes on, the more it costs.So, the sooner we can pay off Help to Buy the better. I always recommend getting out of Help to Buy as soon as practically possible.
Is it worth paying off Help to Buy early?
The question is, what’s early? Technically your Help to Buy is a 25 year loan, but you shouldn’t be having Help to Buy in 25 years.For most people, the first five years are interest free, although that did change with later Help to Buy deals. If you can pay it off when it finishes, or before that, that’s best.
It’s a good time because, generally, after five years your house has gone up enough to have more equity which helps with the remortgage – but not so much that you’re paying thousands of pounds extra on Help to Buy.
Your income will be better than it was five years ago in most cases, too. But you can do it whenever you like – the sooner, the better, in my opinion. The intricacies of how to do this are covered in part one of this podcast.
Do all lenders offer Help to Buy remortgages?
Pretty much, yes. I can’t think of one that wouldn’t. Ultimately, the point of a Help to Buy remortgage is to go to a new lender – so that by the time their loan completes, Help to Buy will be no more.Some lenders are better than others and some specialist lenders might not be overly familiar with it. We go to different lenders for all sorts of cases, so there’s lots of choice.
However, If you’re not paying your Help to Buy back in full, not all lenders will offer you a remortgage. Most people just want to get rid of Help to Buy, but that’s not always possible.
You could perhaps get rid of half the Help to Buy loan, if that’s what you have to do. But there are not that many lenders to go to – we’re a bit more restricted.
Is it better to pay off Help to Buy before selling? Is it hard to sell a Help to Buy home?
It’s not hard, because no one else knows you have Help to Buy. It’s not like shared ownership, for example, where you’re going to sell your share of the property. You own the property outright.Help to Buy is just an extra loan on that property. It’s not relevant to anyone else. It’s no harder to sell your Help to Buy a home than any other home.
I do have a little trick for repaying Help to Buy involving remortgaging, but it’s not always appropriate. Basically, if we remortgage to a new lender, we can sometimes get away with saying the house is worth a little less than you might sell it for.
We’re not lying to anyone – the trick is to get an independent valuation that’s as low as possible. We get a surveyor to come round, talk to them nicely and make sure they give you a valuation based on lower comparable evidence rather than higher.
Then, as far as Help to Buy are concerned, your house hasn’t gone up too much in value.
As soon as that loan is paid off, you’re free to sell. Let’s say your valuation came in at £300,000. That remortgage goes through and your loan gets paid off.
You then put the property on the market a few months later for £325,000. You’ve worked the system nicely there – if you’d waited and paid off your Help to Buy loan based on your sale price at £325,000, you’ll pay back 20% of the extra £25,000.
Bear in mind that if you want to sell, you are tied into a new lender in this situation. We need to make sure it’s a good lender to move house with. Otherwise there’s a penalty to come away from them that might outweigh the saving you just made on your Help to Buy.
Is there a penalty for withdrawing from Help to Buy?
There’s no penalty. There is an admin fee of £200 and a couple of other costs as well, including the property valuation. We need an independent valuation from someone accredited by the Royal Institute of Chartered Surveyors (RICS). The cost depends on the house value, but it’s usually £300 to £400.Then there’s going to be some legal work. If we’re moving lenders, the lender-swap legal process is usually covered by the new lender, so you won’t pay fees for that. But the new lender won’t pay for you to have your Help to Buy loan paid off. That’s an extra legal fee of something like £350.
So there are a few hundred pounds of extra fees to pay off Help to Buy. We can potentially add those back into the mortgage, but those fees usually need paying at the front end of the process.
What happens if I can’t pay back my Help to Buy loan?
In that case, we probably just change mortgages without paying off your Help to Buy. There are a few lenders we can go to for that, or you can always just stay with the same lender.Not everyone can pay back the loan- you might just swap yourself onto a new rate and have another look again in two years, five years or whenever is appropriate.
It’s not not the end of the world. It just means that Help to Buy is going to stay there, and after a while you’re going to start paying interest on it. The longer you leave it, the more it is going to cost you, as house prices go up. There are options, just not as many.
Could I be refused a remortgage? Why would this be?
Yes – it probably wouldn’t be anything to do with Help to Buy – it would be your own circumstances. We’d probably be thinking about adverse credit or income. You wouldn’t necessarily be refused a mortgage due to income, but perhaps you just can’t borrow as much as you need.We’ve got lots of content on the site about adverse credit that you can look at. If you’re refused a remortgage that’s a likely reason – not Help to Buy specifically.
What happens if you keep the Help to Buy loan?
Nothing happens, really. You just still have a Help to Buy loan. You might stay with the same lender and change your rate, or we might go to another lender. You start paying interest on it after five years and the loan balance is going to go up as your house increases in value.What else do we need to know about a remortgage to pay off Help to Buy?
We’ve covered a lot in these two episodes, and we do a lot of this type of business. There are some YouTube videos you can enjoy at your leisure about the same subject.We do know a lot about this situation and can help you decide what’s best. If you have any questions, please just get in touch.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
Useful Links
- What are my Remortgage Options?
- Remortgaging For Home Improvements
- Remortgage to Release Equity
- Remortgage to Repay Help To Buy
- Remortgage When Self – Employed
- Interest Only Remortgage
- Buy to Let Remortgage
- Product Transfer Mortgage
- Remortgage of an Unencumbered Property
- Remortgage to Pay Off Credit Card Debt
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