How to pay off a Help to Buy loan

Many first-time buyers take advantage of Help to Buy and affordable home ownership schemes enabling them to get on the property ladder. But often, people settle in and years go by without considering how to repay the loan.

With house prices having increased immensely over the past year, it’s likely you have built up a fair bit of equity in your home. You could decide to stay put and remortgage, or you might want to move home. Learn more about Help to Buy from the information below, and if you would like further guidance specific to your circumstances, you know where we are.

The basics...

When purchasing your property through Help to Buy Wales you had to provide a minimum deposit of 5%. The scheme loaned you 20% of the purchase price and you took out a repayment mortgage to cover the remaining amount.

How does the scheme differ in Wales compared to England?

In Wales, Help to Buy loans are available to both first-time buyers and home movers on properties valued up to £250,000.

When do I need to pay off the Help to Buy loan?

The loan must be paid off within 25 years (regardless of your mortgage term) or on completion of the sale of your property. However, you are free to repay the loan at any point within that period.

How can I pay off the loan?

You can make repayments at any time either in segments or entirely. If you do repay part of the loan, you must ensure the remaining balance of the loan is at least 5% of your property’s current market value. You’ll need to instruct a RICS surveyor to assess the value of your property within 14 days of applying with Help to Buy Wales to pay off the loan. As Help to Buy Wales owns a share of your property, this is a legal process, and you will need to involve a conveyancer/solicitor.

What happens if my property goes up in value?

As you’ve borrowed a percentage of your home’s value not a fixed amount, the loan amount you need to repay will be 20% of the property’s current value, not of its value when you bought it. This means you could end up paying more back than you borrowed.

Do I pay interest on the loan?

The loan is interest-free for the first 5 years. After that, you will pay 1.75% of the market value of your loan, rising each year by the increase (if any) in the Retail Prices Index . plus 1%. Here's an example of the interest that would be paid on a £200k property.

How can I raise funds to repay the loan?

Repaying tens of thousands of pounds is no easy feat, which is why most people tend to repay their loan either when it comes to remortgaging or selling the property when a chunk of equity can be pulled out. Again, a RICS surveyor will need to be instructed to value your property so that you know what equity you’ve potentially built in the property and therefore the loan amount you will need to repay.

What happens if the property’s value increases due to home improvements?

Home improvements like extensions, loft conversions, and conservatories aren’t permitted, only small DIY jobs. There are unique circumstances where Help to Buy Wales will allow for home improvements, such as adaptions due to care or medical needs.

If you obtain consent from Help to Buy Wales prior to making home improvements, they will disregard the increase of these within the market value and sale price. Without consent, you could risk making home improvements, your property’s value increasing, and Help to Buy Wales being able to take a piece of the pie!

Can I change the ownership of my property?

To either remove or add a property owner, you will need written permission from Help to Buy Wales and they will only allow this once. When this happens, you will also need to renew the mortgage offer from your lender.

Can I rent out my property?

Help to Buy Wales will only approve subletting if you have involuntarily been relocated, you can’t remain at the property due to medical issues, or you’re serving in the Army. Lodgers are permitted if you are still living there too.

Is your fixed mortgage deal coming to an end? Or are you thinking of selling your property? Now is the perfect time to review your financial situation. Over the past year, house prices boomed which means your property is likely to have gone up in value. You might want to consider using some of this equity to pay off all or part of your Help to Buy loan.

If you have any further questions about your Help to Buy Loan or you would like mortgage advice based on your individual circumstances please don’t hesitate to get in touch.