Help to Buy Remortgage Difficulties - SAM Conveyancing discusses the options
Need to remortgage with a Help to Buy loan?
We can help you switch to a better rate, whether you are repaying some of your equity loan or not.

Our independent mortgage brokers can advise on the best mortgage products suitable for Help to Buy Equity Loan clients' needs.
 

Help to Buy Remortgage

05/04/2023
(Last Updated: 31/08/2023)
787
9 min read

Key Takeaways

  • You'll want to remortgage when you come to the end of your fixed term, to switch to a better rate than your current lender's standard variable rate, or when you're ready to repay some of your equity loan.
  • Once you begin paying interest fees on the equity loan portion, your monthly expenses will rise significantly. It can help, however challenging, to remortgage to pay off as much of the loan as you are able to.
  • Any remortgage will require approval from the lender and from Target.
  • The Help to Buy administrator has now changed; please liaise with Homes England for customer services on your Help to Buy loan.

Can I remortgage on Help to Buy?

It is possible to remortgage on Help to Buy, but there are additional challenges to overcome. You'll want to remortgage for two reasons:

    1
    When your fixed term ends, your interest rate will revert to your lender's standard variable rate, which is usually higher than other fixed rate options available at the time. Remortgaging to a preferrable fixed rate deal is a common way to keep your monthly repayments down.
    2
    You don't pay any interest for the first five years after you take out your equity loan, but from the sixth, you'll begin paying interest, which will increase as long as you do not repay the loan. You may be able to consolidate these repayments by remortgaging to pay off some or all of the equity loan.

NB This article applies to the Help to Buy Equity Loan scheme, and not the Help to Buy Mortgage Guarantee scheme.

A statement added to all Authority to Proceed letters issues after 18 January 2019, has implications for first charge lender mortgage calculations for Help to Buy. In particular, how high an interest rate any lender can impose on a relevant Help to Buy mortgage borrower.

This article examines:




    1

    How can I remortgage on Help to Buy?

The help to buy remortgage process is as follows:

Get approval from Target and your Lender:

  • Any new mortgage term agreed with a new lender must not exceed the unexpired term of your existing mortgage.
    For example, if remortgaging a 25 year mortgage 5 years into the term, the new mortgage should not exceed 20 years.
  • The new mortgage must be no more than your existing mortgage from your main lender.
    The exception to this is if you are going to use the additional borrowing to repay your equity loan.

Send your paperwork to Target:

  • A copy of the formal mortgage offer from your new lender
  • Details of the solicitor you've instructed to handle the conveyancing for the remortgage
  • A Mortgage Redemption Statement from your current Mortgage Lender
  • A copy of the New Mortgage Lenders Deed of Postponement (DOP)

Pay Target's fee

You currently have to pay £115 for this service and Target advises that you pay this fee when you send over the above documents.

If approved: receive Guidance Pack

Once Target has received the documentation and has approved your application, it sends a Guidance Pack to your solicitor who then processes the required deeds to complete the transaction.

Target stresses that you have to inform your new lender of your existing equity loan, which is not only a second charge but entitles the Government to a share of future sale proceeds. You are encouraged to pay off your equity loan as soon as possible.

Ready to begin the Help to Buy remortgage process?

  • Our independent mortgage brokers can help you find the right product for your needs and make an application with better chance of success.
  • Our nationwide panel of local Target Compliant RICS Valuers are available to provide a current market valuation this week
  • Our experienced Help to Buy solicitors can handle full or partial repayment of the loan with a lump sum or through your new mortgage.


    2

    What are the issues regarding Help to Buy remortgages?

Fixed rate mortgages are highly popular, particularly with first time buyers. These give you a fixed sum you'll have to pay each month and protect against sudden interest rate rises which might otherwise make your monthly payments unaffordable. When your fixed term comes to an end you need to secure another fixed rate to carry on mortgaging under these terms, or choose another type of mortgage.

If you are unable to remortgage for a new fixed rate deal, your old mortgage becomes chargeable according to your lender's standard variable rate, which is going to be considerably more expensive and less predictable. Fixed term periods of 2, 3 and 5 years are particularly popular, however there has been some question over the risks and benefits of fixing your rate due to the mortgage rate uncertainty of 2023.

What is the catch?
Of around 30 lenders who offer Help to Buy Equity Loan home purchase mortgages, far fewer are currently offering remortgages once an initial fixed period has expired. This imbalance between supply and demand results in lenders who offer the facility being able to charge much more than normal for remortgaging.

Why won't lenders grant Help to Buy Equity Loan remortgages?

Lenders have been reluctant to sign up to the Help to Buy Equity Loan scheme at all because they have to accept a second charge on your property, i.e. the equity loan portion, repayable to the Government, as well as their own first charge. Additionally, the process set down by the Government for Help to Buy remortgaging, from valuations to required paperwork, is much more time-consuming and administratively complex for the lender than normal.

The lender reserves the right to withhold permission to change lenders, from any Help to Buy borrower. With interest base rate rises in 2022/3, lenders are even more reluctant because of affordability concerns when the borrower(s) have two loans to repay (both the mortgage and the equity loan).

This issue is hitting those who've used the Help to Buy London scheme hardest, because most users will have secured the maximum 40% equity loan available for the region rather than 20% loan available for the rest of the UK.

A specific obstacle to borrowing more in your remortgage to pay off the equity loan, is the time limit. Where a lender might grant a regular borrower a larger loan on a new 25 year deal, you will have to repay the additional amount, within the term of the original mortgage, according to Target's restrictions. A shorter term means larger monthly repayments which will depend on your affordability.

Additionally, Target has been singled out for criticism from various industry quarters regarding the speed with which it processes matters such as remortgage applications.

    3

    What are your options regarding securing a Help to Buy remortgage?

  • Your best strategy is to approach your current lender in the first instance for a new fixed rate mortgage. The largest advantage in doing this, obviously, is that the mortgage lender already has a relationship with you and the application process should be far speedier.
  • If this approach fails, then given the current small size of lenders that are offering Help to Buy remortgages, you are highly advised to consult an independent mortgage broker to find out what your options are and likelihood of success. We offer a free initial consultation with a specialist.
  • From Target's perspective, 'advances to be used for staircasing or repaying the equity loans (sic) will usually be welcomed and approved' - so you may want to consider a rate switch as well as a cash advance for this purpose from the outset of any application to a lender.

    4

    How big a difference do the equity loan interest fee charges make?

According to Target's literature, the way the interest fee structure works (i.e. no interest fees to pay for the first 5 years, only the management fee of £1/month) is intended to encourage you to staircase and more to full ownership as soon as you can.

Given that the interest fee payments start in year 6, it's worth examining what difference this makes given that you'll have to cover these every month in addition to repayments on your main mortgage.

These interest and management fee payments don't contribute towards equity loan repayments, of course, and the full debt will still be repayable on sale.

Interest and management fees on a £40,000 equity loan (non-London)

Estimated-Interest-and-Management-Fee-costs-Annual-and-Monthly HTB Equity Loan £40,000 not London

Interest and management fees on a £160,000 equity loan (London)

Equity-Loan-London-HTB-160000-Required-Loan-Interest-and-Management-Fees

Help to Buy Repayments Calculator

Find out an estimate on how much you'll need to pay to redeem your help to buy loan.

How many years have you owned the property for?
What is the current market value (estimate)?
What is your equity loan percentage?
Equity Loan Redemption Amount
£0.00
Annual Interest Fee and Management Fee Due
£12.00
Estimated Monthly Payment
£1.00

HTB-Calculator.png

    5

    What other options do you have which don't involve remortgaging?


Pay off the equity loan with savings or a gift

If you have any way of paying off or even reducing your equity loan with cash, via your own savings or via a gift from a family member, you put yourself on a much stronger footing with lenders because you'll be diminishing or eradicating the second charge on your home.

The longer you don't repay your equity loan, the greater the interest charges. As the projections in the table above shows, for the case of a London Help to Buy Equity Loan of £160,000, you might end up having to find a massive £296/month extra, just to cover the interest and management fees alone.

Sell your property

Your equity loan has to be redeemed in full when you sell up. If the property has increased in value, you'll have an increased equity loan sum to pay off, but you'll have also gained on the increase of value in the rest of the property.

Frequently Asked Questions
RemortgageLoan
DOP
Andrew Boast of Sam Conveyancing
Written by:
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Caragh Bailey, Digital Marketing Manager
Reviewed by:

Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.


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