What You Need to Know
Help to Buy Remortgage
New mortgage deals mean that Help to Buy homeowners will be able to remortgage their properties without first paying off the 20 % government equity loan.
Help to Buy Remortgage
The government began Help to Buy in 2013 to make new build homes more affordable for buyers.
Under the scheme, cash-strapped buyers would put down a 5% deposit and then get the rest of the required amount from a government equity loan – up to 20% of the property’s value. With cash in hand, buyers could then approach traditional mortgage lenders for the remaining 75% of the funds they needed to complete the transaction.
Many people on the scheme are not sure what happens once their fixed-term mortgages run out. What happens to the equity loan then?
Under Help to Buy, most banks and building societies put homeowners on five-year fixed-rate deals. These mortgages promise to keep interest rates fixed for the period of the contract before reverting to the prevailing interest rate, whatever that happens to be at the time.
You usually need to remortgage onto a standard variable rate (SVR) mortgage which tracks the interest rates at the end of the five-year term. Unfortunately, many lenders don’t offer specific Help To Buy remortgage products. And those that do often insist that homeowners pay off the 20 % government equity loan first.
For borrowers, this is a problem. They might have some capital in the bank, but they can’t usually repay the government equity loan in one payment. What’s more, equity loans usually start accruing interest after the first five years, putting even more pressure on cash levels.
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New Help To Buy Mortgages
There is good news, though. Select lenders launched a range of Help to Buy remortgage deals over recent years. They hope the new products will make things easier for people on the scheme.
Some are offering customers two and five-year fixes with initial rates that depend on the value of the mortgage outstanding. Some plans come with an initial product fee , some may offer cashback.
Should You Pay Off Your Government Equity Loan In Full?
Whether you should pay off your government equity loan in full before remortgaging is your choice. However, it may offer some distinct advantages.
First, you won’t have to start paying the interest charges at the end of the five-year grace period. That’s more money in your pocket.
Second, you give yourself a larger number of mortgage lenders to choose from when you come to remortgage. You don’t necessarily have to stick with your current bank if they’re giving you a less favourable deal.
Lastly, you’ll be able to benefit from any increase in the value of your property, without having to pay off a bigger equity loan. Remember, the government’s Help to Buy scheme loan amount increases as the value of your property rises, so paying it off quickly can allow you to hold onto your capital.
However, saving up to 20% of the value of your property is a challenge, even if you have five years to do it.
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How Property Values Affect Your Remortgage Decision
In a growing economy, house prices tend to rise over time. However, they can fall too, and there are no intrinsic reasons to suppose that they should rise above the rate of inflation indefinitely.
The value of your Help to Buy loan relates to the value of your property. If your home goes up in value by 10%, so too will the amount you owe the government. Similarly, if prices drop by 10%, the amount you owe will fall by the same amount.
What you do in this situation is, again, a personal financial decision. If you’re not planning on moving, you might want to take advantage of the lower loan value to reduce it as quickly as possible.
If prices are rising, you might want to sell your property. You can then use the funds that the sale generates to pay off the government equity loan, without leaving you feeling out of pocket.
Overall, the Help to Buy scheme is popular. The government granted more than 200,000 equity loans since its inception, helping people afford new build homes.
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FAQ
A mortgage is a loan from a bank or building society that allows you to purchase a property. The loan is repaid over several years with interest dependent on your personal financial situation.
A mortgage can be between one or more people. However, if you do not keep up your repayments, the lender can repossess your property.
All mortgage lenders have their own requirements. The following factors take a part in whether you will be given a mortgage offer, and how much the lender is willing to borrow you:
- Amount you wish to borrow
- Size of your deposit
- Employment status and income
- Credit rating
- Outgoings
- Existing debt
- Your age
- Length of the mortgage term
- Your credit status
- If you are applying solely or jointly
To be accepted by a lender, you need to assure lenders that you can repay your mortgage. One main aspect lender’s look at is your credit report to check your repayment history. Your credit file will include current and existing records on items such as credit cards, loans, overdrafts, mortgages, mobile phone/s, some utility payments and all accounts that have been open in the last 6 years. If your credit report shows arrears, defaults, CCJs, debt management plans or bankruptcy in the past, there are mortgage options available which we can help you with.
To get a mortgage you will need to save a deposit of at least 5%, but the more you save, the better your mortgage rate will be. If you have an existing property you own, you can use the equity in your property for this. Our skilled mortgage advisors can talk and guide you through the benefits and the difference in your monthly payments by increasing your deposit.
As soon as you have found the property you want to buy, our mortgage brokers will evaluate your personal needs and situations and recommend a mortgage product that is right for you. They will compare a wide variety of mortgage quotes, including products that cannot be found on the high street or comparison sites. This guarantees that you get the right deal at a right price.
If you agree to the mortgage product your advisor suggests, you will receive your Agreement in Principle (AIP). This will provide you with an estimated total of how much the lender is willing to borrow you and allows you to put an offer in on your ideal home.
If your offer is accepted, you will need to arrange a solicitor to deal with searches, surveys and contracts, which we can arrange for you. We manage the entire mortgage application process through to completion, liaising with your solicitor and lender to make sure your application is successful.
There are different mortgage options such as a remortgage. In this case we would recommend looking for a new mortgage deal approximately 3 months before your current deal expires. By beginning the mortgage process early it will allow you to prepare ahead of time to compare all the available mortgage products and submit your application. Do not worry if your mortgage is approved early as we will ensure that the completion date corresponds with your current deal’s end date.
A lot of mortgage lenders will lend you up to five times your salary. However, this all depends on several factors including your age, number of dependants and current financial commitments. Lenders will work out how much they will lend you based on what you can reasonably afford each month after you have paid your bills, credit cards, loans etc.
In addition, our mortgage advisers will assess your individual needs and situations to see how much you can realistically borrow before an application or credit search is completed. If you choose to continue with the application, our advisers will understand which mortgage lenders to approach to ensure you get the required loan amount.
In order to buy a property with a mortgage, you will need to save a deposit of at least 5%. However, the more you can save, the better your rate will usually be. There are a few exceptions to this as follows:
- If you already own a home, you can use the equity from your property for the deposit
- If you are a council tenant and are looking to buy your current home under the Right to Buy scheme, most mortgage lenders will now accept your Right to Buy discount as a deposit.
As property prices increase, first time buyers are struggling to save enough money to buy a home. In cases like this the government has therefore introduced ‘Help to Buy’ to allow first time buyers to get on the property ladder.
Our expert mortgage advisors are aware of various mortgage deals available and can help you decide which mortgage deal best fits your needs.
When buying a home, you will need to save enough money to pay for other factors and not just your mortgage deposit. This also includes paying for your mortgage fees, moving costs and legal expenses. We have listed below all the possible purchase and moving expenses you may have to pay, to help you with your budgeting. The exact fees and amount you will pay, is dependent on the value of the property you are buying and your chosen mortgage lender.
Mortgage booking fee: Some mortgage lenders will charge this to secure a fixed-rate or tracker deal.
Cost: £99 – £250
Mortgage arrangement fee: Some mortgage products will incur a mortgage arrangement fee, in addition to the mortgage booking fee. This fee is either paid upfront or added to your mortgage debt. If you chose to add it to your mortgage, the cost will increase over the lifetime of your mortgage.
Cost: £1,000 – £2,000
Telegraphic transfer fee: Needs to be paid to the lender to transfer the amount you are borrowing for the mortgage to the seller’s solicitor.
Cost: £25 – £50
Mortgage broker fee: If you use a mortgage advisor to arrange your mortgage for you, you will need to pay a fee or commission, depending on the value of your mortgage.
Cost: £197- £597. However, this may vary if you need to use a specialist lender
Valuation and survey fees: Charged by the lender to value the property you are buying. The cost varies according to which survey you choose:
Home condition survey: Most basic and cheapest of all the surveys and often used for new-builds.
Cost: £250
Homebuyer’s report: More in-depth survey, assessing the inside and outside of the property, and also includes a valuation.
Cost: £400
Building survey: A complete survey generally used for older or unconventional properties. Although they are the most expensive, they are certainly worth considering, as it could potentially save you a lot of money if any structural problems are found with the property.
Cost: £600
Higher lending charge: Can be charged by lenders if you borrow most of the value of the property.
Cost: Approximately 1.5% of the amount you borrow
Searches: Your solicitor will arrange for the local authority to check whether there are any issues that could affect the property’s value. The local council can charge a fee for carrying out these searches and may also request that a drains search be done at the same time.
Cost: £250 – £300
Legal costs: You will need to instruct a solicitor to carry out the necessary legal work for you.
Cost: £850 – £1,500 plus VAT
Stamp Duty Land Tax (SDLT): Charged on all purchases of UK land and property over £125,000. However, the amount you will pay is dependent on the purchase price of the property you are looking to buy, and whether you have owned a home before as follows:
First home: First-time buyers are exempt from paying SDLT on the first £300,000 of the purchase price of a property up to the value of £500,000. All purchases in excess of £500,000 will pay the standard stamp duty rates as follows:
- £0 – £300,000: 0%
- £300,001 – £500,000: 5%
Next home: If you are currently or have previously been a homeowner, you usually pay SDLT on increasing portions of the property price:
- £0 – £125,000: 0%
- £125,001 – £250,000: 2%
- £250,001 – £925,000: 5%
- £925,001 – £1.5 million: 10%
- £1.5 million+: 12%
Second property: If you are looking to buy an additional property, you usually have to pay 3% on top of the normal SDLT rates as follows:
- Less than £125,000: 3%
- £125,001 – £250,000: 5%
- £250,001 – £925,000: 8%
- £925,001 – £1.5 million: 13%
- £1.5 million+: 15%
For example, if you buy a next home for £275,000 the SDLT you owe is calculated as follows:
0% on the first £125,000 = £0
2% on the next £125,000 = £2,500
5% on the final £25,000 = £1,250
Total SDLT = £3,750
Information correct as of October 2021 – Source: www.gov.uk/stamp-duty-land-tax
Removal costs: Paid to the removal firm (if you choose to use one) to pack, transport and deliver your possessions to your new home.
Cost: £300 – £600
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