Help to Buy was a popular government scheme aimed at helping people onto the property ladder. It was introduced in 2013 and officially ends in March 2023, although applications were no longer accepted after 31 Oct 2022.
Although not without its critics, the scheme has helped more than 335,000 people to buy their first property.
What were the terms of a Help to Buy equity loan?
The Help to Buy equity loan was interest-free for the first five years, then the interest rate in year six was set at just 1.75% of the loan value. From then on, the interest rate was linked to inflation.
This was a fairly competitive loan in terms of interest rates and the fact that the first five years were interest-free was welcomed. Additionally, if you were able to pay off the entire loan within the first five years, you didn’t pay any interest at all.
The equity loan has to be repaid within 25 years, or earlier if the property is sold.
What are the options after five years?
Because the interest rate kicks in after five years, although year 6 is at a low rate, there are a number of options to consider at this point.
Option one is to keep the government share in the property untouched and start paying the new higher annual interest rates. For some people, this is the only choice.
Option two is to repay part of the loan. This process is known as ‘staircasing’ and effectively gives you a larger share in the property. Each step has to be at least 10% of the property value and, as the government share is usually 20%, there are only two ‘steps’ needed to pay back the entire loan. To do this, you will need to have access to savings/funds. Staircasing early is good if house prices are likely to go up in the future, as the extra shares can be bought at the current market value.
Option three at the five-year stage (or indeed at any stage) is to exit the HTB scheme by buying back the 20% that the government owns. If you are able to afford this, usually by remortgaging, there are many advantages, including the fact that you will benefit from 100% of any increase in the property price in the future.
Prior to making any decision about a help to buy repayment, you may decide to review online resources such as those at https://www.samconveyancing.co.uk/news/conveyancing/help-to-buy-loan-repayment-5182, and to seek legal advice before moving forward.
So, what is the best thing to do?
If you can afford it at the five-year stage then you should try and get out of the HTB scheme by paying back the entire loan. If you cannot afford this but can afford to buy back 10%, then that will help. If you are unable to do either, you could consider overpaying on your mortgage instead to increase your equity slowly in a different way.