The Government launched a new home buying scheme back in 2013, called Help to Buy equity loans. After the credit crunch happened, the property market slowed down for a while. By introducing this new scheme, the property market could start to find it’s way back up again. Years later, it seems to be in a much better place than it ever was before it happened.
You gain no interest for the first 5 years, which means a lot of home buyers could now be reaching their repayment date. Missing your payments will lead to an increase in interest.
You may find the help of an experienced mortgage broker in Liverpool useful if you’re reaching or are already near the end of your 5 years. Our experienced mortgage advisor may be able to reduce your monthly repayments or help re-organise some of your finances.
The Help to Buy equity loan scheme works quite simply. The Government loans the applicant up to 20% of the properties value. You won’t pay any interest back for the first 5 years, though if the value of the property goes up, then you will need to pay more back to the government.
An example of this is; if your property were worth £130,000, you could borrow up to £26,000. However, if the property suddenly were worth £150,000, the amount owed would total at £30,000. In this case it could appear misleading to some, though this same process applies the other way also. If your property dropped in value to £110,000, your total to pay back would only be £22,000.
As with most mortgages, the minimum required deposit is 5%, though higher amounts can result in better mortgage deals.
Over our years of experience as a mortgage broker in Liverpool, we have had many customers who have used the Help to Buy equity loan, but aren’t entirely sure what they signed up to when they made the purchase.
The reasons for this could vary, such as the scheme not being properly explained or the applicant getting caught up in the excitement of the home buying process. No matter the case, it comes as a shock when a letter comes through asking you how exactly you plan to pay the loan back.
Technically the Government owns a percentage in the home, seeing as the 20% is only a loan and not a gift. This is why it is in your best interests to pay it back as soon as possible. If you still haven’t paid it back after the 5 year interest free period, interest will be added on, starting with 1.75% in the 6th year. Each year after that it increases beyond that.
It’s at this point that customers struggle to keep up their monthly mortgage repayments and a majority look at taking out a remortgage to help with this.
You might find that not all lenders will accept a remortgage from a Help to Buy applicant, though it is not unheard of and is something a mortgage broker in Liverpool could help you with.
We have a large number of lenders on panel and thousands of deals to choose from. We should be able to find you a lender to remortgage with, depending on whether or not you’re able to afford it based on your current income.
When raising capital to repay an equity loan, the maximum loan to value is restricted. Despite this, a lender may still consider going up to 95%.
A large plus side here is that repaying the equity loan in full will mean that any future property value increase will only benefit you, the homeowner, as you will have paid off the governments share. Failing that, an option you could look at is “staircasing”.
This is basically where you gradually pay off the loan over a set amount of time in instalments. This should theoretically reduce the percentage in your home that the government owns. Please note that this is only possible to do in multiples of 10.