How to Pay Off Your Help to Buy Equity Loan

The Help to Buy equity loan scheme in the United Kingdom assists individuals in purchasing new-build properties. This government-backed initiative provides an equity loan to supplement a buyer’s deposit and mortgage, making homeownership more accessible. This guide details the process of repaying this equity loan.

Understanding Your Help to Buy Equity Loan

The Help to Buy equity loan is an equity share in your property. The amount owed is not a fixed sum but a percentage of your home’s current market value. For example, a 20% equity loan on a £200,000 property means you owe 20% of its value at repayment, which could be higher or lower than the original £40,000. This equity stake fluctuates with the property’s value, directly impacting the repayment amount.

Repayment typically becomes necessary under several circumstances. The most common trigger is the sale of the property, where the loan is settled from the proceeds. Another trigger is remortgaging to a higher loan-to-value (LTV), which may require partial or full repayment to meet new lending criteria. The equity loan is interest-free for the first five years. After this period, interest charges apply, starting at 1.75% and increasing annually by the Retail Price Index (RPI) plus 1%.

Determining Your Property’s Current Value

Determining your property’s current market value is a mandatory step before repaying your Help to Buy equity loan. Homes England, the scheme administrator, requires a professional, independent valuation report to calculate the precise amount due. A surveyor registered with the Royal Institution of Chartered Surveyors (RICS) must conduct this valuation to ensure impartiality.

The RICS valuation report must include specific details for Homes England’s acceptance. This includes your property’s current market value, an internal and external inspection, and at least three comparable sales within a two-mile radius from the last three months. These properties should be similar in type, size, and age. The valuation is valid for three months from the report date; the repayment process must be completed within this timeframe, or a new valuation may be required.

The Repayment Options and Associated Costs

Several options exist for repaying your Help to Buy equity loan, each with distinct processes and costs. One common method is full repayment upon property sale. The equity loan amount, calculated as a percentage of the sale price, is deducted from the proceeds, settling the loan before property transfer and integrating repayment into the conveyancing process.

Another full repayment approach involves remortgaging your property to release funds. Homeowners can apply for a larger mortgage to cover the outstanding equity loan, consolidating borrowing. This option suits those retaining their property but eliminating the loan, especially before interest charges escalate.

Partial repayment, or “staircasing,” allows homeowners to repay a portion of their equity loan while retaining the property. This involves repaying in increments of 10% or 20% of the current market value, reducing the government’s equity stake. Staircasing can reduce future interest payments or help gain full ownership over time.

Each repayment option incurs various financial costs. These include the RICS valuation fee, ranging from £200 to £500 depending on the surveyor and property. Administrative fees, typically £100 to £200 for full or partial repayment, are charged by Homes England or its administrator. Additionally, solicitor fees, varying from £300 to over £1,000, are a significant cost. Legal professionals handle conveyancing aspects, such as removing the charge on your property.

Completing the Repayment Process

Finalizing repayment involves understanding your equity loan, obtaining a valid RICS valuation, and deciding on your repayment option. The process begins by formally contacting Homes England, or the relevant equity loan administrator, to declare your intention to repay the loan.

Following notification, submit your RICS valuation report, crucial for determining the exact repayment amount. Depending on your chosen method, you may also need to provide additional documentation, such as proof of funds or your solicitor’s details if remortgaging or selling. Your solicitor plays a central role, managing the legal aspects and dealing with the legal charge Homes England holds on your property.

The solicitor will coordinate directly with Homes England and, if applicable, your mortgage lender to facilitate fund transfer. This ensures all parties align on the repayment amount and legal steps to remove the equity loan charge. Upon successful exchange of funds and completion of legal formalities, Homes England will issue a redemption certificate. This document confirms the equity loan has been fully repaid and the charge on your property removed from the Land Registry.