Launched back in 2013, the Government’s ‘Help-to-Buy’ scheme was designed to help first time buyers get onto the property ladder, through offering an equity loan for up to 20% of a property’s value, interest-free for the first five years1.
But a decade on, what happens if you are looking to sell a home and have a Help-to-Buy equity loan outstanding?
This format of Help-to-Buy (HTB) scheme has now ended but offered buyers in the UK to purchase a property with a deposit of as little as 5%, and a mortgage for the remaining 75%, topped up by the Government’s 20% equity loan (or 40% in London)1.
The only catch is that the interest-free period stopped after five years, and with the main condition that when the homeowner comes to sell, 20% of the property’s value today, must be repaid to the owners of the HTB scheme, the Homes & Communities Agency (HCA). With property prices varying, the final amount you pay back will vary too2.
When do you have to pay back a HTB loan?
Homeowners have up to 25 years to pay back the HTB loans, this can either be undertaken either in blocks (sometimes known as ‘Staircasing’2) or in full when the property is sold. However, when selling a property with a HTB loan, there are a few extra hoops to jump through.
How do you calculate what you owe?
A common misconception on HTB loans is that the amount loaned to the homeowner would stay the same, whereas it will fluctuate over time, and is linked to the value of the property at the time it is paid off.
If you are paying off a HTB loan at the time that the house is being sold, the property valuation will be used to calculate the final amount owed, or a valuation will need to be undertaken if the loan is being paid off without moving from the property. In each case, the valuation must be carried out by a chartered surveyor from the Royal Institute of Chartered Surveyors (RICS) in order to be approved by the HCA3.
We’ve put together a practical example to show how this could work in practice:
Original Purchase Price of House – £200,000
5% Deposit put down by buyer – £10,000
75% Mortgage Loan from Lender – £150,000
20% Help-to-Buy Loan from HCA – £40,000
In this example, the homeowner was loaned £40,000 as part of the Help-to-Buy scheme, based upon buying a £200,000 property.
When it comes to selling the property, if this has gone up in value by 10% and is now valued at £220,000, then the value of the money owed to the HCA for Help to Buy has also increased by 10%. Therefore the £40,000 amount owed has increased to £44,000.
Selling your Home
When it comes to selling a home with the Help-to-Buy equity loan outstanding, the HCA become involved in the selling process. You’d need to notify the HCA through their administration agents, Lenvi (formerly managed by Target) prior to proceeding with a sale.
Your property will need to be valued by a RICS chartered surveyor, otherwise there is a risk that the valuation can be rejected by the HCA and another survey will be required, at your own cost3.
You can sell your property before the initial five-year interest-free period is up, and repay the equity loan when you sell.
Many useful guides can be found online relating to the finer details to be considered when selling a home with an HTB equity loan outstanding, including these guides from Zoopla and the Home Owners Alliance.
Staying in your home and paying off the HTB equity loan
Alternatively, some may wish to pay off the HTB equity loan without moving home. After the five-year interest-free period expires, then interest will be due each month, so it is recommended to make arrangements to pay off the equity loan as soon as you can to avoid incurring additional payments each month.
Homeowners who have a 20% Help-to-Buy loan only have the option of part-paying off either half the loan or the full amount in one go, there are no smaller payment increments available. This may represent a considerable sum of money, so one option could be to remortgage your property and pay off the HTB loan using a larger mortgage, should your financial circumstances allow. However, this may not be suitable for everyone, and it is important to consider your monthly income and outgoings before making any decisions along these lines.
More guidance on ways to pay off a HTB equity loan can be found at the Government’s website – https://www.gov.uk/guidance/how-to-repay-your-equity-loan-when-you-remortgage.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.
We’re here to help
If you’re a homeowner with a Help-to-Buy loan, the last thing you want is for it to feel like a weight around the neck, so that’s why we are here to give you the advice you need to make the decisions that are most appropriate for you and your circumstances, just book an appointment and speak to us to see how we can assist.
Sources
Gov.uk (2023) Help to Buy: Equity Loan. Available at: https://www.gov.uk/help-to-buy-equity-loan (Accessed 22 November 2023)
Home Owners Alliance (2023) Selling a house with a Help to Buy Equity Loan. Available at: https://hoa.org.uk/advice/guides-for-homeowners/i-am-selling/selling-a-home-with-a-help-to-buy-equity-loan/ (Accessed 21 November 2023)
Zoopla (2023) How to sell a Help to Buy property. Available at: https://www.zoopla.co.uk/discover/selling/how-to-sell-a-help-to-buy-property/ (Accessed 22 November 2023)
All the information in this article is correct as of the publish date 30th November 2023. The opinions expressed in this publication are those of the authors. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.
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