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Help to Buy Remortgage

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By Pete Mugleston   Mortgage Advisor

Last updated: 23rd November 2018

We receive hundreds of enquiries from customers wanting to remortgage their help to buy property, having reached the end of their current mortgage term. Most find this difficult due to their loan to value, and because the number of lenders considering help to buy remortgages is limited.

Thankfully it is certainly possible, and there are now more and more lenders offering specific products, and we work with the experts who arrange these on a daily basis – To get the right advice for you, make an enquiry and we’ll refer you on!

Included in this article:

About Help to Buy remortgages

When the Help to Buy scheme was launched in 2013, it was the biggest government intervention in the housing market since the 1980s. So far, Help to Buy has given hundreds of thousands of home buyers the chance to purchase their first home or the opportunity to move to a bigger property.

Now, years on from the launch of Help to Buy, many people are approaching the end of their initial mortgage term, and are faced with a challenge to refinance, either to switch to a better deal or to perhaps start paying back their equity loan. So, if you have a Help to Buy mortgage, what are your options?

In this article we will look at how you can remortgage a Help to Buy loan and whether you can remortgage to pay off the equity loan.

The main things you need to consider in remortgaging a Help to Buy mortgage are:

  • Are you Help to buy 1 or 2?
  • How much equity do you have?
  • Personal details (Age etc.)
  • Affordability (income and outgoings)
  • Credit history (any credit issues or low score?)
  • Property type (is it a flat, house, high rise, in good state of repair?) 

How to remortgage a help to buy equity loan (Help to buy 1)

Remortgaging a help to buy 1 mortgage can actually be straightforward, if you know what you’re doing!

Depending on the age of the equity loan, this will remain in place and the mortgage is simply switched over as it would in the usual way. The important thing is to establish the loan to value when pricing up the best help to buy remortgage products.

If you have taken a help to buy 1 mortgage, you’ll have likely put in some cash (at least 5%), used the government equity loan up to 20%, and taken a repayment mortgage for the rest.

The mortgage would have likely been tied in for a number of years (usually 2-5), at which point you can either take a product with your current lender, or refinance away onto a better deal somewhere else.

Help to buy 1 remortgage process

  1. Make an enquiry
  2. We’ll refer you to one of the remortgage experts
  3. Your expert will recommend the best product
  4. When you have sent over all documents, they process the remortgage on your behalf
  5. An admin fee is payable to the Help to buy administrators who handle the transaction their end
  6. You pay for a separate valuation for the help to buy (if being repaid)
  7. The property is re-valued by the lender
  8. The mortgage is offered
  9. The solicitors handle switching lender
  10. You complete!

To explain this process, it’s probably simpler to give an example:

Let’s say at the time of purchase a Property value was £200k, the buyer put in 5% deposit (£10k), used 20% equity loan (£40k), and took a mortgage for the remaining 75% (£150k).

2 years on, the buyer has made payments and paid off an extra £10k and is now looking to refinance onto a better help to buy remortgage rate. In the 2 years, the property has also risen in value to £215k.

To remortgage then, based on the situation at the time of applying, the value is £215k, the equity loan is £43k, the mortgage is 140k and the customer therefore has 32k equity.

The lenders offering Help to buy remortgages will consider the mortgage to be circa 65% loan to value (LTV), and thus a lower risk than at the time of purchase, where the LTV would have been 75%.

How to remortgage help to buy 2 (mortgage guarantee) mortgages

Help to buy 2 (mortgage guarantee) remortgages are slightly different, in that they were originally set up at the time of purchase, with a 95% mortgage and no equity loan.

The scheme was designed to allow lenders to purchase a mortgage guarantee that protected them against losses in event of repossession up to, 80% of the property value. These guarantees purchased last for 7 years and were intended to also protect borrowers who remortgage.

That said, as the help to buy remortgage deals are priced at 95% loan to value, they are not likely to be as attractive as the help to buy 1 remortgages at 75% or less.

The good news is that there are many more lenders offering mortgages up to 95% LTV (Loan to Value) than there were five years ago, and the market has become more competitive.

What happens to the equity loan on help to buy remortgages?

Unless you pay it off, this remains in place. As per the terms of the loan, after 5 years of ownership the borrower begins to pay an annually increasing amount of interest on the loan until it is fully paid off.

You’ll need to pay an admin fee of circa £115 to the help to buy department for handling the transaction.

Can I pay off my equity loan?

Yes! Although under the terms of the scheme the minimum you can repay is 10% of the property value. To repay some of the loan there is a £115 admin fee. To fully repay, if you can afford it, there is an admin fee of £200.

Re-valuing the property

The help to buy scheme will want the property re-valued when you mention you’re repaying some of the loan. Unfortunately, this is at the applicant’s expense.

An important note here is that if borrowing the funds to do so, a mortgage valuation could come back with a different result to the help to buy. In this event, it can be positive (lender could release more than required) or negative (lender won’t lend enough).

Can you remortgage to pay off an equity loan?

Absolutely, there are lots of options available to borrowers with a Help to Buy Equity Loan who would like to remortgage to pay back the equity share.

Repaying some or all of the equity loan

Remember, when you pay back the Equity Loan in full, you will need to pay the same percentage of the current property value as the percentage you originally borrowed.

To repay a portion, as above, it needs to be a minimum of 10% of the property value, but you can repay it in full if you have the equity / cash to do so. In practice, not everyone will have increased their equity steak and property value to the level where refinancing to release equity and repay the loan is possible.

If we use the above example where the property is now valued at £215k and the equity loan is £40k, the mortgage is £140k and the customer therefore has £35k equity.

Some lenders may consider the remortgage up to 90% LTV, and a handful perhaps up to 95% in certain circumstances, to release capital for paying off the equity loan.

The borrower would need to raise £140k to repay the current lender + £43k to pay off the equity loan = £183k, which at a value of £215k would be just over 85% LTV – so there may well be several lenders that would consider this.

Should you pay off the help to buy equity loan?

You don’t have to pay off a Help to Buy Equity Loan if you choose to remortgage. In fact, it might be more beneficial to reduce the balance of your mortgage than to pay off your Help to Buy loan, particularly in the first five years. Even in the sixth year of your Help to Buy Equity Loan, the interest rate will only be 1.75% and it will increase gradually from there, so if your mortgage rate is more expensive than the rate you are paying on the equity loan, you will save more money by paying down the balance on your mortgage.

If you are not paying off the Help to Buy Equity Loan when you remortgage, you will need a lender that is happy to accept a Help to Buy remortgage. Options are likely to be more limited than those available more widely in the market and Help to Buy remortgage rates may be a little more expensive, but more lenders are entering this area of the market and it is becoming increasingly competitive.

If you choose to remortgage without paying off the equity loan, remember that a lender will need to factor in your payments towards the loan when calculating how much you can afford to borrow.

If however, prices are increasing, then it may make sense to consider it sooner rather than later. Essentially in this environment, the longer you keep your Help to Buy Equity Loan, the more expensive it will become. This will depend entirely on your personal circumstances – the mortgages that are available to you and the price inflation of your property.

We work with specialist Help to Buy mortgage advisors who will be able to recommend the best approach for your individual circumstances.

What are the help to buy remortgage rates?

Help to Buy Equity Loan interest rates

This chart shows the projected charges of having the equity loan over the first 10 years of owning the property…

Start of year Estimated Retail Price Index (RPI) + 1% Interest payable on Help to Buy loan
1 6% 0%
2 6% 0%
3 6% 0%
4 6% 0%
5 6% 0%
6 6% 1.75%
7 6% 1.86%*
8 6% 1.97%*
9 6% 2.08%*
10 6% 2.21%*

 *Estimated interest based on estimated Retail Price Index

Speak to one of the expert help to buy remortgage advisors we work with today.

Affordability on help to buy remortgages

If you are remortgaging a property that you purchased with Help to Buy you will need to demonstrate that you are able to afford the payments on the mortgage.

Lenders calculate affordability based on how much you earn and how much you spend, and each lender will have a different way of using your income and outgoings to work out your affordability.

Remember, that if you are not paying off the equity loan as part of the remortgage, a lender will need to consider the interest payments on the loan as part of your outgoings.

In general, lenders tend to lend up to 3x or 4x your income but there are some lenders that can advance up to 6x income or even more.

Different lenders have different ways of looking at additional sources of income, such as bonus, overtime or investment and this could have a big impact on how much you are able to borrow.

Hypothetical example

Your basic salary is £50,000, but you earn an annual bonus of £30,000.  Here’s what different lenders might be able to lend to you:

  • Lender 1 considers 50% of your bonus and lends up to 4x income
    £30,000 x 50% = £15,000
    £50,000 + £15,000 = £65,000
    £65,000 x 4 = £260,000 max loan
  • Lender 2 considers 100% of your bonus and lends up to 5x income
    £30,000 x 100% = £30,000
    £50,000 + £30,000 = £80,000
    £80,000 x 5 = £400,000 max loan

In this hypothetical example, there are no changes to your circumstances, but one lender may lend up to £160,000 more than the other, simply because of the way they calculate your affordability.

More information on affordability can be found in ‘How much can I borrow on a mortgage?’.

Remortgaging a Help to Buy loan if you are self-employed

In recent years, lenders have become much better at providing mortgages for the self-employed and it is now common for specialist lenders to approve a mortgage based on 12 months of accounts or even less.

Trading history is one consideration in choosing a lender, but it’s also important to think about how you draw your income from the business. Some lenders use affordability based on salary plus dividends for company directors, but there are lenders that can use profit retained within the business.

Hypothetical example

You are the director of a Ltd company and a 100% shareholder of the business. The company makes an annual profit of £150,000, but you limit the salary and dividends you draw from the business to reduce your tax liability, to Salary: £10,000 and Dividends: £40,000.

A typical lender that considers salary and dividends and lends up to 5x income might be able to lend up to £250,000.

£10,000 + £40,000 = £50,000 x 5 = £250,000

On the other hand, a lender that considers profit retained within the business and also lends up to 5x income could lend up to £750,000

£150,000 x 5 = £750,000

Even though your circumstances are the same, the different way that lenders use your earnings for affordability can make a big difference to the amount you are able to borrow.

Help to Buy remortgages for contractors

More and more lenders are introducing a specialist approach to approving mortgages for contractors. Affordability on a contractor mortgage is generally based on the day rate a contractor earns, which is then used to establish a figure for annual income. Lenders will typically use the day rate x 5 to establish a weekly rate and then x 46 weeks to allow for holidays and breaks between contracts.

Hypothetical example

  • A contractor earns a day rate of £600
  • A lender would multiply this day rate by 5 to establish weekly earnings
    £600 x 5 = £3,000
  • Many lenders then consider annual income to be weekly rate x 46 weeks to allow for holidays and breaks between contracts.
    £3,000 x 46 = £138,000

What is the minimum and maximum age for a help to buy remortgage?

The minimum age for most lenders is 18 and there is an increasing number of remortgaging options for older borrowers.

Traditionally lenders have had a maximum age at application or at the end of the mortgage term, but there are now lenders that do not stipulate a maximum age.

For these lenders, the most important factor is affordability and they will want you to demonstrate how, if the mortgage stretches past your retirement, you will continue to be able to afford the repayments.

Help to buy remortgages if you have bad credit

Your choice of mortgage will also depend on your credit history. The good news is, even if you have some history of bad credit, it is still possible to borrow up to 90% LTV, or more with some lenders.

There are two important factors, when considering your options. What the types of credit problems you have had and how recently they occurred. Generally, the older the credit problem (and less serious) the more options you will have to get a more competitive rate.

Here’s a brief summary of different types of credit problems and things to consider.

Late payments and arrears

Late payments and arrears can be recorded on secured debts and unsecured debts and late payments that are not brought up to date within a month are considered as arrears. High street lenders might typically expect a clean record in the last 12 months but there are specialist lenders that can approve mortgages for customers who have recent late payments and arrears.

Defaults

A Default is when there have been consecutive missed payments on a credit commitment. There are many lenders that will consider borrowers with Defaults, and it’s possible to get a mortgage if you have had Defaults registered to your name as recently as in the last 3-6 months, even where they have not been paid off.

CCJs

A CCJ is a county court judgement, or court order, against someone who has failed to repay money. CCJs are often treated by lenders in the same way as Defaults and it’s possible to get a mortgage if you have had CCJs registered to your name as recently as in the last 3-6 months, even where they have not been satisfied.

IVAs and Bankruptcy

It’s also possible to get a mortgage if you have been in an IVA or experienced bankruptcy. There are lenders that offer high LTV mortgages to borrowers who are in an IVA or have been discharged from bankruptcy just 1 year ago.

Debt Management Plans

A Debt Management Plan (DMP) is an agreement between a borrower and their creditors to pay off debts, with reduced payments made over a period of time. A number of lenders now offer specialist mortgages for borrowers in DMPs, often with competitive rates if the plan has been successfully maintained.

Speak to a help to buy remortgage expert

We work with specialist advisors who have an in-depth knowledge of the criteria for different lenders and will be able to find the best deal for your circumstances

If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 23rd November 2018
OnlineMortgageAdvisor 2018 ©

FCA disclaimer

The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage.

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