Redeeming a Help to Buy Equity Loan
By Aaron Bailey
The Help to Buy Scheme has now been extended until 2023, and with the Help to Buy Scheme now also open to non-first time buyers who are purchasing a New Build property, it is likely that the popularity of the Scheme is set to continue.
Many people have taken on a Help to Buy Equity Loan to help them purchase a property since the scheme began back in April 2013, and we are now in a busy period for people intending to redeem those loans and move on to a new property. Although many people understand the process of obtaining the loan when they are purchasing the property, they do not necessarily know the process involved with paying it back further down the line.
How can you redeem a Help to Buy Charge?
There are 3 ways to redeem a Help to Buy Charge they are briefly set out below;
- Sell your home: - If you choose to sell your home you can redeem the help to buy charge as part of the sale process, you should tell your Estate Agent and Legal Representative as soon as possible as there are extra steps to take as part of this process, and you will usually incur additional legal fees for the additional work involved.
- Staircasing: - You can use staircasing to increase the equity you own in your home, Help to Buy will usually own a 20% share in your property, staircasing can be used to decrease the amount they own and increase the amount you own until you own the full 100%. The minimum amount you can staircase is 10% and you can only do this if there are no arrears on your account, however because Help to Buy loans work differently from normal mortgage products you should seek financial advice on the best options for your specific needs before proceeding.
- Remortgage your home: - You can also remortgage with your current mortgage provider or a new mortgage provider, if you are able to borrow a suitable amount to repay the existing mortgage and Help to Buy Equity Loan, which can mean you do not have to move from your property if you wish to live there more than the 5 year interest free period of the Help to Buy Equity Loan.
What is involved?
All of these methods involve paying an administrative fee to your Help to Buy provider and are subject to you obtaining an R.I.C.S. Valuation Report. If Help to buy approve the valuation they will then issue a figure for redemption or staircasing. You will have a 3 month period where the valuation and figures provided remain valid. If this period expires another valuation will be required at your own cost; however you can obtain a desktop valuation provided it meets the Help to Buy Scheme criteria. It is particularly important to note these timescales with house sales which take an average of around 12 weeks but can be longer if there are long chains or leasehold properties involved. To recap the steps are as follows;
- Obtain a RICS valuation for the property.
- Send Target your valuation, Legal Representative's details and pay the Administration Fee
- Target will confirm in writing if they approve the valuation and provide a redemption figure
- Legal Representative deals with the rest of the legal work and redemption of the equity loan including obtaining a redemption statement, providing an undertaking to Target, and obtaining authority to proceed to exchange/and or completion.
At the time of contacting your Help to Buy provider you will need to know your Legal Representative details so you should speak to them and confirm any fees before you pay any application fees to your Help to Buy provider, or mortgage lender if you are remortgaging so you can ensure you have calculated all the relevant costs.
Authority to Exchange and Authority to Complete
If you are selling your property and redeeming the Help to Buy Equity Loan on completion of your Sale, you Legal Representative will have to obtain authority to Exchange Contracts and also Authority to Complete as part of the process, this means that you will need to have a gap in between exchange and completion of at least 10 working days, again this is why it is important that your Legal Representative and Estate Agent are aware of the Help to Buy involvement as they will need to manage expectations on how quickly exchange and completion can take place.
If you are considering any of these options or just want to know more details for the future you can contact Help to Buy using the following details;
Tel: 03333 214044
Email: AHO@helptobuyagent2.org.uk (affordable home ownership enquiries)
Email: email@example.com (generic enquiries)