Help to Buy Staircasing: Pay Off Your Equity Loan
- Help to Buy Staircasing is when you opt to pay off part of your Help to Buy Equity Loan. This is different to shared ownership staircasing.
- Repaying some of your equity loan, like repaying your mortgage, increases the equity you own in your home and reduces your debt.
- However, you have to weigh up whether it is worth your while to do so, particularly if you are going to use another mortgage loan for the purpose, because of the way that a Help to Buy equity loan differs from standard mortgages.
- Paying off your equity loan now at today's value could mean you pay less money when compared to the property's value in 5 years.
What are the requirements to Staircase a Help to Buy Equity Loan?
- The minimum amount you can staircase at one time is 10% (of the total market value of the property at the time you staircase).
- The above requirement means that when the mortgage lenders’ equity in your property is less than 20%, you can only repay the equity loan in full.
- You may only staircase in multiples of 10%: 10%, 20%, 30% etc.
- You cannot staircase if there are any arrears of interest payments and/or management fees on your mortgage account. Any arrears must be cleared before a staircase transaction can proceed.
You won't pay interest for the first five years. Starting in the sixth year, you'll be charged interest at a rate of 1.75% on the equity loan amount you originally borrowed. This annual interest is divided into monthly payments.
Example:
- Property purchase price: £200,000
- Equity loan percentage: 20%
- Equity loan: £40,000
- Annual interest payment in year 6 (1.75% of the equity loan): £700
- Monthly interest payment in year 6: £58.33
Making part repayments on your equity loan can decrease your interest payments because the interest rate is applied to a smaller amount.
Our experienced conveyancing solicitors can help you staircase your Help to Buy equity loan.
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What is the Staircasing Process?
- 1Mortgage Valuation - Obtain a RICS valuation.
- 2Application - Submit your Help to Buy Application Form, including your RICS valuation and pay your admin fee.
- 3Provide your ID and source of funds.
- 4Source of Funds Certificate - Your Solicitor reviews the source of refunds within 5 working days and often requests further evidence. Once satisfied, the solicitor submits a Certificate of Source of Funds to Help to Buy, within 3 working days.
- 5Redemption Statement - Help to Buy issue a Redemption Statement within 10 to 15 working days - faster if you chase them. If your valuation isn't approved, they will contact you and may also wish to speak to your RICS valuation surveyor. This may result in a revised current market value.
- 6Completion Statement - Your solicitor prepares the file for completion and sends their legal undertaking to Help to Buy, requesting their Authority to Complete.
- 7Payment - At this stage, you transfer the full amount for the equity loan repayment into the solicitor's account, who will hold it until completion day.
- 8Authority to Complete - Help to Buy reply after 15 working days - faster if you chase them.
- 9Completion - Your solicitor pays in the completion monies. A memorandum of staircasing is issued confirming the amount remaining on the Help to Buy equity loan.
What if completion is delayed?
If the completion date stated on the legal undertaking doesn't take place and is delayed by more than one week, your solicitor has to issue a new undertaking.
Two ways you can Staircase your Help to Buy Loan
You either opt to pay for your staircasing:
a) With a lump sum
Usually a gift, inheritance, or savings. You simply follow the procedure outlined in sections 1 and 2 above.
b) With another loan secured on your property
In this scenario, when you liaise with the Help to Buy Administrator, they provide a Guidance Pack to your solicitor, who processes the Deed of Postponement document required by your main mortgage lender for this transaction. The Deed of Postponement ensures your lender is ranked as the first charge on your home.
The amount of other-lender borrowing permitted is restricted to the amount you must pay for your staircasing transaction costs.
For example, if you are looking to staircase 10% and your property is worth £200,000, you will need to pay £20,000.
In this example, the further borrowing you can take out is restricted to £20,000 – you may not exceed this amount.
Homes England cannot confirm the exact amount of alternate borrowing you can obtain until they have the required information.
You should not arrange alternate borrowing before they send you confirmation of the amount you can borrow.
However, you may contact your lender to ensure you can obtain the amount you estimate that you will require.
Are you ready to repay some of your equity loan?
Our panel of RICS Surveyors and Help to Buy solicitors can handle the process from start to finish. Get a free call back to discuss your needs and get a tailored quote:
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
