Help to Buy Early Repayment
- For the first five years, you pay no interest on your Help to Buy Loan. There is, however, a management charge of £1 per month.
- After this term expires, you pay interest at a rate of 1.75%, although this will increase each year. If you're in a position to do so, starting the Help to Buy early repayment process might be a good option for you
- Paying off help to buy equity loan early doesn't attract a penalty charge (like you have with your mortgage)
- As soon as you complete on the property purchase, you can pay off your loan, as well as sell your property, at any point in time. You will need a help to buy redemption solicitor to do so.
- Generally, any changes to your circumstances, such as staircasing or subletting the property, will require the approval of your administrator. Paying off Help to Buy equity loan early allows you to make any changes as you see fit.
You can repay your Help to Buy loan at any time and you do not incur an additional penalty for doing so like you would with a mortgage. The majority of our clients look to repay the loan before the end of the 5th year so as to avoid the 1.75% interest charge that starts getting applied from the start of year 6.
The process to pay off help to buy equity loan early is different whether it is part of a sale, being paid off in full or partial, however in general here is the process:
- Get a Help to Buy Valuation Report from a RICS surveyor
- Instruct a Help to Buy Solicitor
- The Help to Buy Administrator provides a redemption statement
- Completion takes place
Can you pay off Help to Buy before 5 years?
The Help to Buy loan is meant to be repaid within 25 years, and you can pay it off at any point during this time. The first 5 years are interest free and you are only paying £1 per month for the management charge. For this reason, if you have the necessary funds, paying off help to buy equity loan early, before that term expires, might be a good idea, as you could save up on any interest payments.
After 5 years, you pay interest at a rate of 1.75%, but this will increase every year. For more details on how to pay off your loan after 5 years, read our article - Help to Buy Repayment After 5 Years. Alternatively, you can use our calculator to see how your monthly payments will change in time.
Is it worth paying off Help to Buy early?
Depending on its reasoning, it might be worth paying off the Help to Buy loan early. It is important to remember that the amount you pay back is calculated from the current value of your property, not the value at the time of taking out the loan. Property prices have increased steadily in recent years, so should the trend keep up, you will be forced to pay more to pay off your loan.
Also, as the interest rate will rise every year after the first five, your monthly payments will increase, too. If you're able to do so, the help to buy early repayment might be best.
If you're planning on selling, this will trigger the full repayment of help to buy loan. If, however, you're interested in subletting the property or changing it in any way, you will always need approval from the organisation responsible for your loan.
If you try to sublet your house without permission, you will be forced to pay off the loan in full, and your house could even be repossessed. In this case, it would be worth paying off the loan early so you can be the sole party in charge of the property.
Can I sell my house before 5 years with Help to Buy?
As long as you've completed the purchase, you can sell your Help to Buy property anytime. You will be forced to pay off the entire loan, as you cannot move it on another property. The rule is that if you've used a Help to Buy equity loan to purchase a house which you later wish to sell, you must pay off the loan in full from the sale proceeds.
The more the property value increases, the more you pay towards your equity loan. So, if it makes more sense financially, you can always sell and use the remaining amount to put down a deposit on a new property. We discuss this process in further detail in our article - How to Sell a Help to Buy Property.
When you come to sell, you'll need to meet Help to Buy requirements and obtain their Authority to Complete.
Whether you decide to pay off the equity loan early or not, you will most definitely need the help of a Help to Buy solicitor. Our experienced conveyancing solicitors can handle complex transactions.
Can you pay off Help to Buy in stages?
You can pay off your Help to Buy in stages, through a process which is called staircasing. You can, however, only do this by paying off in 10% increments (i.e. 10%, 20%, 30% etc.). You must pay off the loan in full once you are left with less than 20%.
If you decide to pay off part of your Help to Buy loan early, then the percentage you pay is based on what your home is worth at the time - not what you originally bought it for. Before you make a partial payment, you'll need a Royal Institution of Chartered Surveyors (RICS) Valuation Report from a qualified surveyor who will value your home based on its condition and the current housing market.
Before staircasing, you should make sure that any arrears or outstanding payments are cleared; otherwise, your administrator will reject your application.
