Help to Buy, while it lasted, was an effective scheme that enabled many homebuyers to get a foot on the property ladder, particularly in securing a new build home. It provided much-needed support by bridging the gap between savings and the actual cost of purchasing a property. However, now that the scheme has effectively closed, it’s time for many homeowners to consider their next steps.

While the Help to Buy equity loan acted as a good catalyst in helping homebuyers, it’s in the homeowners’ best interest to redeem this loan as soon as possible. Here are four key reasons why:

1. Redemption is Based on the Market Value of the Property The repayment of your Help to Buy loan is tied to the current market value of your home, not the original purchase price. If your property has appreciated in value, you could end up paying back significantly more than what you initially borrowed. Redeeming the loan earlier can potentially save you thousands of pounds.
2. Restriction to Rent Out the Property Homeowners with a Help to Buy loan are not permitted to let out their property unless the loan is fully repaid. This restriction can pose a problem if you’re considering becoming a landlord or need to temporarily rent out your home due to personal circumstances.
3. Restriction to Purchase Another Property The Help to Buy loan must be repaid before you can purchase another property. This can limit your options if you’re looking to move up the property ladder or invest in additional properties.
4. Interest is Payable from Year 6 Onwards While the Help to Buy loan is interest-free for the first five years, from year six onwards, interest becomes payable at a rate of 1.75%, which then rises each year in line with inflation. This added cost can quickly mount up, making early repayment a smart financial move.

Some homeowners may argue that it’s beneficial to take advantage of the interest-free initial five-year period and delay redeeming the Help to Buy loan. There are even clients who have suggested waiting to see if property prices drop, which could theoretically justify paying interest on the loan after the six-year mark, as the lower property value would result in a reduced redemption amount.

However, this strategy comes with significant risks. As a homeowner, you typically own the majority share of the property, given that Help to Buy equity loans represent 20% of the property value (up to 40% in London). Naturally, you would want your property value to appreciate over time, rather than decrease. Relying on property prices to fall in the future is speculative and could backfire, especially in a generally rising market.

The sooner you can repay the Help to Buy loan, the sooner you’ll own 100% of the property’s equity and enjoy more flexibility without the restrictions imposed by the loan. Redeeming it early helps you avoid the uncertainty of property price fluctuations and eliminates the burden of interest payments after the five-year interest-free period.

You can repay the Help to Buy equity loan whenever you’re prepared, but there are specific rules about how repayments can be made. Unfortunately, you can’t make overpayments of your choice. Instead, you have two options: you can either redeem the loan in full or in part. For example, if you took a 20% equity loan, you can either repay the entire 20% or make a partial repayment of 10%.

Given the cost and time involved in redeeming the loan, it’s generally advisable to aim for full redemption where possible, as it simplifies the process and removes future financial obligations.

When you’re ready to redeem the loan, the first step is to get a property valuation from a local valuer with the relevant RICS (Royal Institution of Chartered Surveyors) qualification. You can search for a qualified surveyor near you by visiting the RICS Find a Surveyor website, where you can compare quotes from local professionals.

It’s important to make the valuer aware that the purpose of the valuation is to redeem your Help to Buy loan, as this ensures they understand the specific requirements. Also, remember that the valuation report is only valid for 3 months. Timing the valuation carefully is crucial to avoid the need for an additional valuation, which could add unnecessary costs.

The next step is to engage a solicitor to handle the legal aspects of redeeming your Help to Buy loan. Your solicitor will liaise with the Help to Buy agency to ensure the loan is repaid and the agency’s charge is released from the Land Registry. They will also manage all the compliance requirements involved in the process.

This should be a straightforward process, and your solicitor will guide you through each step, ensuring everything is handled correctly and in a timely manner

Once you have your valuation report and have appointed a solicitor, the next step is to apply to the Help to Buy agency to get your redemption value. This application requires you to submit the valuation report, and there is typically a fee associated with this process.

The agency will calculate the amount you need to repay based on the current market value of your home, as determined by your RICS valuation. Once you receive the redemption figure, your solicitor will proceed with finalizing the repayment.

You have several options to fund the repayment of your Help to Buy loan:

1. Using Personal Savings or a Gift from Family If you have sufficient savings or receive a gift from family, you can repay the loan yourself. This option allows you the flexibility to redeem the Help to Buy loan at a time that best suits you without needing to involve any additional borrowing.
2. Remortgaging Another option is to remortgage with a new lender and include the funds needed to pay off the Help to Buy loan in the new mortgage.
3. Taking a Further Advance from Your Current Lender You may also be able to take a further advance from your existing lender to cover the Help to Buy loan repayment. Timing the redemption and ensuring that the advance is processed efficiently is essential to avoid delays.
4. Selling the property. If you’re planning to sell your home, you can use the proceeds from the sale to redeem the Help to Buy equity loan. This can simplify the process, as the solicitor handling the sale can also manage the repayment of the Help to Buy loan using the sale proceeds. Logistically, this tends to be a smoother process, as the loan is redeemed directly during the property transaction, ensuring that everything is settled at once

Properties usually have a valuation range, and it’s important to note that the redemption of the Help to Buy loan is typically based on the lower end of this range. However, if you’re applying for a remortgage or further advance, the lender may use the higher end of the valuation range. This can result in more attractive mortgage rates, as a higher property valuation improves your loan-to-value ratio, giving you better borrowing options.

A client purchased a home in 2020 for £370,000 with a 5% deposit and a 20% Help to Buy equity loan (£74,000), secured on a 2-year fixed mortgage product.

In 2022, when the fixed term ended, the property’s value had increased to £440,000. As a result, the client’s redemption figure for the Help to Buy loan increased to £82,000. The client did not have personal savings to cover the redemption, so we helped them raise the necessary funds through a remortgage.

The client incurred costs of £450 for the RICS valuation and £1,360 in solicitor fees (including disbursements). Despite these costs, the entire Help to Buy equity loan was successfully redeemed through the remortgage.

While the client had to repay a higher amount than they originally borrowed, they were able to fully redeem the loan and now own the property outright without any of the restrictions associated with the Help to Buy scheme.

Clients who purchased their first home in 2017 using a Help to Buy equity loan decided to redeem the loan in 2023, a year after they began paying interest on the equity loan.

Their mortgage was with Halifax, and in 2023, the indexed valuation used by Halifax stood at £630,000. We were able to use this higher valuation to raise the necessary funds for the mortgage, securing better rates for the client.

At the same time, the RICS valuation for the purpose of redeeming the Help to Buy loan came back at £590,000. The clients paid 20% of this lower valuation to redeem the equity loan, which worked in their favor.

Through this approach, we helped the clients achieve better mortgage rates based on the higher valuation while ensuring that the lower valuation was used to minimize the cost of redeeming the Help to Buy loan.