Help to Buy Staircasing

07/11/2019
Help to Buy Staircasing is when you opt to pay off part of your Help to Buy Equity Loan. This is different to shared ownership staircasing.

In simple terms, when you repay any part of any loan used to buy your home, you end up owning more of the equity of your home yourself and reduce your liabilities. However, you have to weigh up whether it is worth your while to do so, particularly if you are going to use another mortgage loan for the purpose, because of the way that Help to Buy equity loans differ from standard mortgages.

This article examines:
Click if you wish to find out more in general about the Help to Buy Equity Loan repayment process.

Do you need help with a RICS surveyor or solicitor?

We are registered with Help to Buy to provide the complete service to repay your Help to Buy Loan including:

  • Target Compliant RICS Property Valuations (nationwide coverage) at competitive prices; and
  • Solicitors to handle the settlement of the equity loan with Target (including remortgaging if required) - either a full redemption or staircasing part of the loan.

You can call us on 0207 112 5388 to run through any questions you have or click the link below to get a quote.

* Fixed Fee – Fast Completions - On all Mortgage Lender Panels - Redemption of Help to Buy Loan Specialists

Fixed Fee, No Sale No Fee with a 5 out of 5 rating

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    1
    What are the requirements to Staircase a Help to Buy Equity Loan?
  • The minimum amount you can staircase at one time is 10% (of the total market value of the property at the time you staircase);
  • The above requirement means that, when the lenders’ equity in your property is less than 20% you can only repay the loan in full;
  • You may only staircase in multiples of 10%, that is 10%, 20%, 30% etc; and
  • You cannot staircase if there are any arrears of interest payments and/or management fees on your mortgage account. Any arrears must be cleared, before a staircase transaction can proceed.


    2
    What is the Help to Buy Staircasing Process?

    1
    Obtain a RICS valuation for the property

It's particularly important to instruct a RICS valuer experienced in Help to Buy valuations.

If your RICS valuer doesn't carry out their inspection and write up their subsequent valuation report according to all Homes England's stated criteria for Help to Buy then it falls to you to rectify the situation: this might involve paying additional costs to your surveyor.



Among other things, the valuer must inspect the interior of the property - it cannot be a reduced report, such as those carried out for lender valuations, where quite often the valuer doesn't look indoors. 

What if your Valuation becomes out of date?

If for any reason your valuation becomes out of date, you are allowed to get a desktop valuation, i.e. one which doesn't involve a site visit, from the original surveyor you instructed.

Desktop Valuation Criteria
  • The desktop valuation must be conducted and sent to Target within 2 weeks of the original valuation expiring and will only be valid for a further 3 months.
  • The valuer must refer back to the original report and confirm the updated report is a desktop valuation.
  • The valuer must be the original surveyor from the first inspection.
  • They do not need to re-inspect the property, but they must make reference to this original report.
  • The valuer must provide at least 6 comparable properties and sale prices within the last year if the property has increased or decreased in value. If 6 are not available, your surveyor must state this clearly. Comparable properties used must be a similar house type.
  • The report must have a new date on it and be signed by the valuer.
  • The report must be on headed paper and provided in a PDF format or a non-editable document.
  • Desktop valuations will be allowed after the original valuation has expired for up to a further three months.
  • If the desktop report expires and a total of six months has been reached and you are yet to complete the transaction you will need to re-inspect your property and a new RICS valuation report provided.
  • If it is considered that the valuation does not accurately reflect the market value, Target will contact you and may also wish to speak to your RICS valuation surveyor. This may result in a revised market valuation.
  • Target have the discretion where completion of your staircasing is imminent to approve one further month in exceptional circumstances.


    2
    Send all the required items to Target
Send Target (click to see contact details) your valuation, solicitor's details, confirm the % your are staircasing and pay your Administration Fee (click to find out the current Administration Fee applicable);

[At press time, the application fee payable to Target for staircasing was £200 with an additional £115 payable for staircasing using either a remortgage or a further advance].

    3
    Target responds to you/your solicitor
Target confirms in writing whether they approve the valuation or not and how much you need to pay to settle your share of the loan.

You/your solicitor should receive this communication from Target within 10 working days. If Target does not approve your valuation, they will contact you and may also wish to speak to your RICS valuation surveyor. This may result in a revised market valuation.

    4
    Solicitor carries out the remaining staircasing legal work
    Picture of solicitor inspecting a Help to Buy Staircasing Authority to Complete sent from Targe
    This includes, among other things, ID checks and obtaining the redemption statement (if you're remortgaging to pay).

    Your solicitor has to email Target the statement that they will be passing over the full sum of money required for your staircasing on an agreed date falling before you intend to complete. This statement is known as an undertaking. Your solicitor must email the undertaking to Target at least 15 working days before the expected completion date.

      5
      Target issues the Authority to Complete
    Target issues the Authority to Complete within 5 working days of receiving the undertaking from your solicitor. Your solicitor can then pay over the funds on the date stated in the undertaking.

    When Target receives the cash, the amount is then validated against the figures stated on the Authority to Complete. If this matches, Target issues a memorandum of staircasing confirming your new - reduced - equity loan percentage and you can then complete on the date agreed and start to benefit from having to pay less interest on your equity loan.

    What if completion is delayed?

    If the completion date stated on the legal undertaking doesn't take place and is delayed by more than one week, your solicitor has to issue a new undertaking.


      3
      What are the 2 ways you can Staircase your Help to Buy Loan?
    Essentially, and as implied in various places above, you either opt to pay for your staircasing:

    A - without another loan being secured on your property

    In this scenario, which might, for example, involve your being gifted the sum you require to staircase, you simply follow the procedure outlined in sections 1 and 2 above.

    B - using another loan secured on your property

    In this scenario, when you liaise with Target, they provide a Guidance Pack to your solicitor who processes the Deed of Postponement document required by your main mortgage lender for this transaction. The Deed of Postponement ensures your lender is ranked as the first charge on your home.

    NB The amount of other lender borrowing permitted is restricted to the amount you need to pay for your staircasing transaction. For example, if you are looking to staircase 10% and your property is worth £200,000 you will need to pay £20,000. In this example the further borrowing you can take out is restricted to £20,000 – you may not exceed this amount.

    Target cannot confirm the exact amount of alternate borrowing you can obtain until they have the required information. You should not arrange alternate borrowing before they send you confirmation of the amount you can borrow. However, you may contact your lender to ensure it is possible for you to obtain the amount you estimate you require.


      4
      What factors you should be aware of before you decide to Staircase your loan?

    Your equity loan rises - and falls - in monetary value alongside rises and falls in the value of your property.


    This could make for some very varied scenarios. If you bought your house originally for £100,000 with a 20% Help to Buy Equity Loan and opted to staircase 10% - half - of your equity loan at a point in time where your RICS valuation stated that your house's value had fallen to £80,000, you would have to pay £8,000.

    Let's say that you opted to pay the rest of the loan off at a later point and your RICS valuation stated that your house's value had risen to £105,000, you would have to pay £10,500 thus in total, you would have paid £18,500 to pay off the principal of loan, some £1,500 less than the nominal amount you borrowed to start with.

    In recent years, property prices have generally risen. Let's take the same opening scenario (20% loan on house you bought for £100,000) and assume you want to staircase 10% and your RICS valuation states that your house is now worth £210,000. You would now have to pay £21,000 to reduce the equity loan to 10% - more than the total original monetary sum you were loaned in the first place.

    You must also factor in the cost of your RICS valuation, your solicitor costs and Target's administration fee.

    It is true, however, to state that there's strictly no interest charges to pay on your Help to Buy Equity Loan until year 6, when the interest imposed is 1.75% of the total loan (or the amount remaining, if you've staircased) and this percentage increases by 1% + the prevailing Retail Price Index for each subsequent year (and don't forget the £1/month management fee you pay from the beginning).

    There's clearly sense therefore in working out how your equity loan total payments will increase if you go into year 6, but overall, the link to the changes in price of your house is likely to be the largest factor in your considerations.

    Issues with Help to Buy Remortgaging


    NB You must ensure that any new lender you approach is immediately made aware that your home is a Help to Buy property with a second charge entitling the Homes and Communities Agency to a share of the future sale proceeds. As stated previously, the likelihood of a lender granting you a remortgage is always lower when you already have an equity loan in place.

     
    You should be fully knowledgeable about the conditions of your main mortgage loan.

    You may find, if you originally opted for a two-year fix with your lender, that you might be forced onto their standard variable rate, which is a much higher interest rate. They might only consider offering you another fix if you have built up a large equity share in your property and even then, the rates you're offered might be much higher than other deals on the market.

    Many Help to Buy Mortgage lenders don't offer the facility to switch after the end of a 2-year fix leaving customers completely reliant on their lender granting them a fair rate after the fixed interest period ends.

    Additionally, if you are able to switch, even if you get a better rate, you can expect to have to pay for additional fees for legal work and other requirements. All borrowers have to have built up at least 10% equity to qualify for a remortgage. Some lenders will consider lending you more money if you want to pay off your equity loan early.

    Some lenders may offer switching customers a Help to Buy remortgage but will most likely base the rate they offer on the share of equity you own outright, which may be at least 15% and this would not include the 20% equity loan.

    You have to consider that paying off Help to Buy equity loan early and completely by staircasing using a remortgage or similar might leave you with very little equity in your property, which will mean that remortgage options become more expensive.

    However, should house prices rise rapidly in your area - and the price of yours alongside this - remortgaging might still prove to be worthwhile to repay the equity loan quickly because it follows that the larger the price rise, the greater in value the Help to Buy Equity Loan becomes.

    How can you contact Target?

    You can contact Target Help to Buy regarding staircasing your Help to Buy loan in the following ways:

    • Customer Service Team number: 0345 848 0235
    • Email: Target.HCA@targetgroup.com
    • Address: TARGET HCA, PO Box 911, NEWPORT, NP20 9PA

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