When is the best time to repay a Help to Buy loan?
A Help to Buy loan can be a lifeline for those who are looking to secure their place on the property ladder, but who do not have the means to put down a deposit. Over 350,000 young people and families have been helped to purchase their own homes with the Help to Buy scheme since its launch in 2013. First-time buyers account for 83% of total purchasers.
Repayments
A Help to Buy loan can be expensive if due consideration is not given to how and when it will be repaid. Those with a Help to Buy loan have a shared equity mortgage, meaning that the government owns a share of the property.
The loan taken out is related to the property’s current value, as opposed to the purchase price. This means that the balance of the loan is dependent on the current value and can fluctuate.
There is no iron-clad way of determining what your loan balance will be in the future, given that it is dependent on the property’s value and interest rates at the time. Given the upward trend of rising house prices, it generally makes sense to pay off the loan as early as possible.
A Help to Buy loan is interest-free for the first 5 years, after which the interest rate is 1.75% of the original loan amount. It will also increase annually with the RPI rate of inflation, plus a 1% management fee. To avoid these higher rates, the sensible option is to ensure that the loan is repaid in full within the 5-year interest-free period.
Remortgaging
An alternative option to managing your Help to Buy loan repayment is to consider a remortgage to pay off the balance or free up funds. An expert conveyancing service will be able to guide you through this process from start to finish, with many having their own team of mortgage brokers, surveyors and Help to Buy redemption solicitors, all under one roof. This makes the entire process as stress-free and streamlined as possible.
For details of a conveyancing specialist who can give tailored and expert advice on your help to Buy loan, mortgages, surveys and the house buying process, visit https://www.samconveyancing.co.uk/news/conveyancing/help-to-buy-repayment-after-5-years.
Remortgaging can either repay the loan in its entirety or be used to take advantage of preferential interest rates to reduce monthly mortgage repayments, thereby freeing up money on a monthly basis that can then be used to repay the loan.
