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Help to Buy Mortgage and Remortgage

Leanne from CD Financial joins the Mortgage & Protection podcast to discuss Help to Buy!

Help to Buy scheme – What you need to know 

The Help to Buy Scheme is one that everybody wants to know about. But it often presents a lot of confusion and can leave people wondering if they’re eligible for the scheme or what the purpose of the help to buy scheme actually is. 

The Help to Buy scheme is essentially an equity loan whereby the government lends both first time homeowners and existing homeowners money to buy a new build property. As a homeowner, you can borrow 20% of the price of your property at an interest free rate for the first five years, providing you have a 5% deposit. If you are looking to buy a property in London, the amount you can borrow interest free for 5 years goes up to 40%, as the house prices are higher. 

How do you qualify for the Help to Buy scheme? 

Currently, pretty much anybody can be part of the Help to Buy scheme. Despite what most people think, you don’t have to be a first time buyer. Even if you have previously been a homeowner and you are looking to move house, the Help to Buy scheme is still an option for you. 

One of the main criteria of the Help to Buy scheme is that the property you buy needs to be a new build property – you can’t do Help to Buy on second hand properties.

You also can’t have any other properties in the background. For example, if you have a buy to let property, you can’t use the Help to Buy scheme to purchase a second property for your portfolio. However, if you currently live in a property you own but you want to move house, you would still be applicable for the scheme.

In order to qualify for the scheme, you need a deposit of at least 5% of the property price. Then, depending where the property is, the government will lend you 20% of the property price, or 40% if you’re buying in London and then the rest is taken out through a repayment mortgage.

Can you put down more than a 5% deposit?

You can put down more than a 5% deposit, but it’s most common that people applying for the help to buy scheme have a smaller deposit – making it a popular thing for first time buyers to opt into. 

What happens after the five years interest free period?

For the first five years of the Help to Buy scheme, the government loan is interest free. However, once the five years are up, you will pay a set interest rate. Then for each year after, your rate will increase based on the RPI (Retail Prices Index) plus 1%.

How do you repay the money you borrowed?

  1. You can simply save up each month and pay a set amount off the loan
  2. You can remortgage in order to pay off the money lent by the government
  3. You repay the money if/when you sell the property

How long does it take to get approved?

Generally, approval happens within around a week of submitting your application form, but this can depend on how busy they are, whether there’s any issue with your application or if there are any questions they need to ask. 

Why might you get declined from the Help to Buy scheme?

Generally speaking, the only reason you would be declined from the Help to Buy scheme is if your affordability doesn’t add up. There is a limit on how much you can borrow – if you want to take on a loan that’s more than 4.5 times your income, then you won’t be accepted on the help to buy scheme. 

As we mentioned before, you cannot apply for the Help to Buy scheme if you have a second property that you aren’t moving out of, for example, if you have properties within a buy to let portfolio. If this is the case and you apply for the Help to Buy scheme on another property, you will be declined. 

Can you pay off the Help to Buy loan before the five year interest free period ends?

Yes, you can pay off the loan as early as you wish. You will need to get the property valued by a surveyor as you need to be repaying 20% of the property’s value, regardless of how much it was valued at when you originally bought it. 

Remortgaging to pay off your help to buy loan

The first thing we do if we’re looking to remortgage to pay off your loan is get it agreed in principle with the lender. It’s important to get the mortgage agreed beforehand because there are fees and costs involved with remortgaging, so you don’t want to get tied up in something before you know if a lender is actually going to lend to you. 

You will then need to get a surveyor involved to value the property because you need to pay back 20% of the property’s value at the time you remortgage, it’s worth noting that the value could be different to when you originally purchased it.

They then produce a report that tells you how much your property is worth, which gets sent off to help to buy. They send you a redemption figure back, which is based on 20% of what the surveyor has valued your property at. This is the amount that we then use when it comes to your remortgage application. 

Our biggest tip when it comes to remortgaging to pay off your Help to Buy is to keep loans, credit cards and outgoings to a minimum so we can make sure that everything is affordable for you and to prevent hitting any stumbling blocks with lenders.