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Could this new mortgage save Help to Buy homeowners thousands?

Scheme users could pay up to £2,100 a year in equity loan interest fees

New remortgaging deals could offer Help to Buy homeowners an escape route from thousands of pounds of interest fees on their equity loans.

Buyers who use the government’s popular scheme face escalating interest fees after owning their home for five years, and some have faced struggles remortgaging to a better deal.

This could be changing, however, with several lenders recently announcing new products that allow homeowners to remortgage at higher loan-to-value ratios, paying their equity loans back in the process.

New mortgage allows you to pay off equity loan

Santander has extended its mortgage rate to allow Help to Buy homeowners to pay off their equity loans in full by remortgaging at up to 90% loan-to-value (LTV).

The extension, which launched on Monday and is available to users of Help to Buy schemes in England, Scotland and Wales, could provide respite for homeowners for two reasons.

Firstly, after the fifth year of owning their home, Help to Buy users face paying interest on their equity loan at 1.75% – a rate that rises by the Retail Prices Index (RPI) +1% each year.

Secondly, many Help to Buy homeowners would also have taken out a five-year fixed-rate mortgage when they bought their property, meaning they would be reverted to their lender’s standard variable rate (SVR) at the same time the interest kicks in on their equity loan.


How many lenders offer Help to Buy remortgaging deals?

The Santander announcement comes hot on the heels of Yorkshire Building Society introducing a specialist ‘Next Step’ range of loans at up to 90% LTV.

These moves are the latest in a series of launches. In January, Skipton Building Society launched its amusingly named ‘Hexit’ mortgages for Help to Buy users, while NatWest came into the market last month.

That doesn’t mean everyone is getting involved, however.

In March this year, our research found that just 19 lenders offered some form of remortgaging deal for Help to Buy users, and some of the big names were conspicuous by their absence.

Help to Buy remortgaging deals have been around since 2015 when Leeds Building Society became the first major lender to offer them, but it’s only now that we’re seeing a significant uplift in the number of lenders providing such products.

Are these Help to Buy mortgages competitive?

When comparing Help to Buy remortgaging offers, you’ll need to be aware that they come in two forms, specific Help to Buy remortgage products (such as those offered by Leeds Building Society), and standard remortgage deals that are available to Help to Buy users (such as the Santander offers).

Help to Buy remortgaging at 90% LTV

For those needing to raise extra capital to pay off the equity loan, there’s very little competition at 90% LTV, where Santander’s new deals beat those from Yorkshire Building Society by 0.2% (based on their initial rate).

Deal type Lender Initial rate Revert rate APRC Fees
Two-year fix Santander 1.99% 4% 3.8% £999
Five-year fix Santander 2.49% 4% 3.5% £999

Help to Buy remortgaging at 75% LTV

The vast majority of the lenders who offer Help to Buy remortgage deals do so at 75% LTV, with Leeds Building Society and NatWest currently offering the lowest rates.

Deal type Lender Initial rate Revert rate APRC Fees
Two-year fix Leeds Building Society 1.64% 4.69% 4.9% £1,999
Five-year fix NatWest 2.26% 4.24% 3.6% £995

Source: Moneyfacts. Accessed 30 October 2018.

Should you pay the equity loan off?

Ultimately, there are three reasons to pay off the equity loan when remortgaging:

  • You won’t need to pay interest on the equity loan.
  • You’ll be able to benefit from 100% of any uplift in the value of your home in the future, rather than handing over a percentage to the government when you sell.
  • When you next come to remortgage, you’ll have a greater choice of deals as you’ll no longer be tied into the Help to Buy scheme.

How much interest will you pay on your equity loan?

If you have an equity loan and don’t remortgage, you’ll need to pay interest from year six. The rate you’ll pay is initially set at 1.75%, a figure that increases at the rate of RPI + 1%.

In its official calculations, the government uses a representative example RPI of 5%, meaning the rate of interest would increase by 6% each year if RPI stayed at that level.

So, if the rate of interest is 1.75% in the first year, it would rise by 6% to reach 1.86% in the second year, and then a further 6% the following year to 1.97%, and so on.

The table below shows the projected equity loan interest payments on a £200,000 home with a 20% equity loan (£40,000) outstanding.

Year RPI + 1% Annual interest Annual cost (interest + £1 a month management fee)
6 6% 1.75% £712
7 6% 1.86% £754
8 6% 1.97% £799
9 6% 2.08% £846
10 6% 2.21% £896

Total from years 6-10: £4,007

Total over 25 years: £26,050

Interest rates on more expensive properties

Of course, if you have a larger equity loan, your monthly interest payments will be higher – and with the maximum Help to Buy limit set at £600,000 you could find yourself paying thousands in interest each month.

The table below shows the year six costs (the first year interest sets in) for more expensive homes bought using Help to Buy.

House price Size of equity loan Year 6 total cost (interest + £1 a month management fee)
£250,000 £50,000 £897
£300,000 £60,000 £1,062
£350,000 £70,000 £1,237
£400,000 £80,000 £1,412
£450,000 £90,000 £1,587
£500,000 £100,000 £1,762
£550,000 £110,000 £1,937
£600,000 £120,000 £2,112

Do lenders allow you to keep the equity loan?

Of the lenders who allow Help to Buy borrowers to remortgage, none specifically state that you can do so without paying off your equity loan.

If you particularly want to do this, it may be worth enquiring with your current lender to see if you can transfer to a better rate without paying the loan off – though bear in mind that this might not be possible.

It can also be helpful to speak to a whole-of-market mortgage broker, who will be able to advise on any lenders who may look at this option on a case-by-case basis.

Help to Buy equity loan remortgaging process

Homeowners remortgaging a Help to Buy property will need to pay some administration fees.

In its official guidance, the government outlines a £200 administration fee for repaying the equity loan, and a £115 fee for remortgaging to a new deal.

When remortgaging, you’ll need to follow this process:

  • Get a redemption quote from your current lender
  • Contact the scheme administrator to tell them you’re planning to remortgage
  • Pay for and send a valuation from a RICS accredited valuer (or District Valuer in Scotland) to the administrator.
  • Wait for the administrator to provide you with an equity loan redemption quote.

Autumn Budget 2018: Help to Buy changes

Help to Buy as we know it has been very popular, with 169,102 equity loans granted in its first five years (up to 31 March 2018), but the way the scheme works is set to change.

In this week’s Autumn Budget, the government announced that when Help to Buy ends in March 2021, it will be replaced by a new version of the scheme solely for first-time buyers.

This scheme will set caps on how much developers can charge on properties from region to region, at 1.5 times the current forecast average first-time buyer price, capped at £600,000 in London.

  • Find out more: for further information on the caps to be introduced in 2021, check out our full story on the new Help to Buy scheme.

Advice on your mortgage options

If you need help navigating the Help to Buy remortgaging process, a mortgage broker can find you the best deal based on your personal circumstances.

Call Which? Mortgage Advisers on 0800 197 8461 or fill in the form below for a free call back.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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