Navigating your Help to Buy loan repayment
Since its launch in 2013, the Help to Buy scheme has helped over 350,000 UK homeowners take their first step onto the property ladder. But as the interest-free period comes to an end, many homeowners are now facing the question: how do I repay my Help to Buy loan?
Navigating the repayment process can seem bewildering, with property valuations, legal requirements, and fluctuating property prices all playing a role. This comprehensive guide will walk you through everything you need to know about repaying your Help to Buy equity loan, helping you take control of your finances with confidence.
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The Help to Buy equity loan was designed to help first-time buyers purchase a home with a smaller deposit and government-backed assistance. It works as a second charge on your property, meaning you’ll need to repay it in addition to your main mortgage.
Key Features of the Help to Buy Loan:
• Borrowing Limits: You could borrow between 5% and 20% of the property’s purchase price (or up to 40% in London).
• Interest-Free Period: The loan is interest-free for the first five years, with just a £1 monthly management fee.
• Interest Charges from Year Six: From year six, interest is charged at an initial rate of 1.75% of the original loan amount, increasing each April by the Consumer Price Index (CPI) plus 2%.
• Repayment Deadline: The loan must be repaid within 25 years, or sooner if you sell your home or pay off your mortgage.
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There are two main ways to repay your equity loan:
1. Full Repayment
You can repay the loan in full at any time. The repayment amount is based on your property’s market value at the time of repayment, not the original borrowed amount.
2. Partial Repayment (Staircasing)
You can repay your loan in stages, with each payment covering at least 10% of your home’s current market value. This helps reduce your loan balance and the amount of interest you’ll pay over time.
Example:
• If you took a 20% Help to Buy loan on a £200,000 home (£40,000), and your home’s value increases to £220,000, your repayment amount would be £44,000 (20% of the new value).
• If the value decreases to £180,000, you’d only need to repay £36,000 (20% of the lower value).
This means that timing your repayment strategically can make a significant financial difference.
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Since repayments are based on your home’s market value, it’s essential to get an accurate valuation. Here’s how:
1. Get a RICS Valuation: You’ll need a valuation from a Royal Institution of Chartered Surveyors (RICS) professional. This report will determine your property’s current worth and how much you need to repay.
2. Factor in Fees: Expect to pay valuation fees (typically £250–£750), a £200 Help to Buy administration fee, and legal costs.
3. Plan for Interest: If you’re making a partial repayment, your interest charges will reduce based on the remaining balance.
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1. Arrange a RICS Valuation
Ensure the surveyor is RICS-certified and independent.
The valuation remains valid for three months.
2. Submit Your Application
Complete the Help to Buy repayment application form.
Include your valuation report and proof of funds (e.g., bank statements or mortgage offer).
Pay the £200 administration fee.
3. Await Confirmation
Homes England will review your application within four weeks.
You’ll receive a Redemption Letter detailing the repayment amount.
4. Engage a Conveyancer
Your solicitor will manage the legal paperwork.
They’ll submit a legal undertaking confirming the repayment.
5. Make the Payment
Your conveyancer will transfer the funds to settle the equity loan.
The Help to Buy administrator will remove their charge from the Land Registry.
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• Valuation Fees: £250–£300
• Administration Fees: £200 for loan repayment, plus potential additional charges for remortgaging or subletting.
• Legal Fees: Vary depending on the solicitor.
• Potential Interest Charges: If you delay repayment past year five, interest starts accumulating.
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Deciding when to repay your Help to Buy loan depends on multiple factors:
✅ If property prices are rising, repaying sooner could save you money.
✅ If mortgage rates are low, remortgaging to cover the repayment might be a smart move.
✅ If you’re approaching year six, acting before interest charges increase is worth considering.
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Can I remortgage to repay my Help to Buy loan?
Yes, many homeowners remortgage to pay off their equity loan, often securing a lower interest rate in the process.
What happens if I don’t repay the loan within 25 years?
The loan must be repaid by the end of the 25-year period or when you sell your home, whichever comes first.
Can I sell my home before repaying the loan?
Yes, but you’ll need to repay the Help to Buy loan from the proceeds of the sale.
Does the loan amount change if my property value changes?
Yes, repayments are based on a percentage of your home’s current market value, not the original amount borrowed.
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At Chetwood Lloyd Mortgages, we specialise in helping homeowners navigate their mortgage and loan repayments. Whether you’re considering remortgaging, staircasing, or full repayment, we can guide you through the process.
📞 Get in touch today for expert advice and a free consultation to discuss your best repayment options.
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