Remortgaging a Help to Buy property
When you buy a home using Help to Buy, you pay a 5% deposit and take out an equity loan from the government of up to 20% of the property’s value.
Usually, you’ll get a mortgage for the remaining 75%, with two and five-year fixed rate dealsamong the most popular choices.
This means that you’ll then need to remortgage when you get to the end of your fixed period to avoid being moved on to the lender’s standard variable rate (SVR), which can be considerably more expensive.
But for some homeowners, remortgaging is easier said than done.
Lots of lenders don’t offer Help to Buy remortgaging deals at all, and many of those that do require borrowers to pay off the government’s 20% equity loan in full.
This can be troublesome for some borrowers. While they will generally have repaid some of their capital on their original loan, they may still struggle to raise the funds to buy out the government’s share.
Keep in mind that you’ll owe 20% of your home’s value. So if you’ve benefited from capital growth since taking out the loan, you’ll have to repay more than you initially borrowed.
NatWest launches Help to Buy remortgage deals
NatWest has launched a range of Help to Buy remortgage products, which allow homeowners with other lenders to remortgage on a like-for-like basis, keeping the same balance and term.
The deals are aimed at homeowners who aren’t intending to pay off their equity loan, and all come with £500 cashback to offset the administration fees charged by the scheme when you switch deals.
NatWest mortgage deals: the costs
The tables below show the different products available in NatWest’s new range.
All of the below products come with initial fees of £995, though NatWest also offers them fee-free at a much higher initial rates of 2.9% (all two-year deals) or 3.49% (all five-year deals).
Are other lenders offering similar deals?
In 2015, Leeds Building Society became the first lender to offer Help to Buy remortgages for borrowers looking to keep their equity loans, but many lenders are yet to follow suit.
In May, we found that as many as 19 lenders offer some form of Help to Buy remortgaging deals, but the vast majority required you to pay off your equity loan as part of the process.
In August, Tesco Bank became the most recent lender to open its remortgage products to Help to Buy customers planning to pay off their equity loans, with new deals for homeowners ‘looking to move from the Help to Buy scheme’.
Help to Buy remortgaging: should you pay off the equity loan?
There are several advantages to paying off the government’s 20% equity loan, if you can afford to do so.
You’ll be able to benefit from 100% of any uplift in the value of your property in the future.
When you come to remortgage, you’ll have a greater choice of lenders and deals.
You won’t need to pay the interest that starts accruing on the equity loan after five years.
The important thing to consider is how you’ll finance paying the loan off.
In theory, you could remortgage to pay off the equity loan, but the number of deals available will be smaller, so you could find yourself on a higher loan-to-value product with much higher monthly repayments.
You’ll also need to go through affordability checks to prove you have a high enough income to service the higher payments.
Help to Buy and property values
The number of options available to you depends largely on whether your property has increased or decreased in value since you purchased it.
Remember, the government owns 20% of what the property is worth – not what you paid for it. This means that, to a degree, you’re cushioned against house price falls, but that you’ll lose 20% of any increase in value of the property.
So if house prices have increased significantly, you might be able to remortgage to pay off your equity loan, or sell the home and use the uplift in value to pay the loan off, leaving you free to buy an existing property on the open market.
Alternatively, if the value of your home has dropped significantly, you might find the deal you’re currently on is at a higher loan-to-value ratio than any other lender can offer you, meaning your only option might be to move on to your lender’s standard variable rate.
This means that timing is very important, and with some lenders being far more flexible than others, it makes sense to seek independent mortgage advice before rushing to a decision.
Help to Buy equity loan scheme in numbers
The Help to Buy equity loan scheme was launched in 2013, and has been very popular with first-time buyers, with eight in 10 equity loans being granted to buyers purchasing their first homes.
The scheme’s future is less certain, though. In theory, it’s set to close in 2021, though there have been suggestions it may continue after this date, possibly in a reduced form.
