How to Pay off Help to Buy With Remortgage
If you're a homeowner who used the Help to Buy equity loan scheme to purchase your property, you may be wondering about your options for paying off this loan. Five years after you secured the loan, interest starts, which can increase your monthly payments. If your mortgage deal also ends, you could face higher interest rates. The loan is often repaid at the end of the first fixed mortgage term and settled by:
- Remortgaging to a higher LTV (Loan-to-Value).
- Personal savings, a further loan, or a gift from family.
- Selling your property.
Remortgaging to pay off your Help to Buy loan involves taking out a new mortgage to replace your existing one, often at a different interest rate or with a different lender.
Why remortgage?
- If you can secure a new mortgage with a lower interest rate than your current one, you could potentially save money on your monthly repayments. This is particularly beneficial if you have a long-term mortgage.
- Remortgaging can also be a way to consolidate other debts, such as credit card balances or personal loans, into a single, potentially lower-interest loan. This can simplify your financial management and potentially reduce your overall debt burden.
- By paying off the Help to Buy equity loan, you'll increase your equity in the property. This can be beneficial if you plan to sell the property in the future or if you need to borrow against it. For instance, if you need to release equity to fund home improvements or a major purchase.
Mortgage valuation and application
When remortgaging, a lender will require a property valuation. This is to determine the property's current market value and used to assess whether the property is worth enough to secure the loan you're applying for.
A RICS Help to Buy valuation involves a visit to the property for a thorough inspection inside and out, taking note of its condition, size, location, and any recent improvements. This will be compared to similar properties in the local area that have recently been sold, and a detailed report with the findings will be sent.
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Once you have the report, you have 3 months to complete the repayment. The next step is applying for a new mortgage; the application must include a detailed valuation report and any relevant admin fees.
ID checks and mortgage offer
In a remortgage application, lenders will need proof of identity and proof of funds as a standard practice to prevent fraud and ensure that the loan is being granted to the correct person.
Once they have reviewed the mortgage offer, conducted credit checks, and assessed the property valuation report, the lender will decide whether to offer you a mortgage If approved, your solicitor will receive the offer letter and this can take between 10-20 working days. If rejected, wait at least six months before reapplying to give yourself some time to take steps to address the reasons for rejection (could be an improved credit score).
Failing to successfully remortgage your Help to Buy means your monthly expenses increase steadily. For the first five years, you pay the management fee of £1 per month, but the interest rate starts in year six and rises in line with the Retail Price Index (RPI) plus 1% each year.
Pay close attention to the interest rate, repayment terms, and any admin fees or charges included in the mortgage offer. Don't hesitate to ask the lender for clarification if you're unsure.
Depending on your circumstances, you might be required to take out mortgage insurance to protect the lender in case you're unable to repay the loan. You might also have an early repayment charge with your existing mortgage lender, so be aware of this before embarking on a remortgage.
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Solicitor review and redemption statement
Your solicitor will
- Review the mortgage terms including the interest rate and repayment terms.
- Look over the terms of your Help to Buy equity loan and how it will be repaid.
- See if stamp duty is payable on the new mortgage and, if so, the amount.
- Prepare the legal documents for the remortgage like the transfer of title and the mortgage deed.
- Coordinate with the lender and Help to Buy.
- Provide guidance throughout the process.
The redemption statement
This is a document issued by your existing lender that details the outstanding balance of your mortgage, any early repayment charges, and the date from which interest will cease to accrue. This document is essential for the remortgage process as it provides the lender with the information they need to calculate the amount required to pay off your existing mortgage.
Your solicitor will usually request this statement from your existing lender once you've accepted a new mortgage offer. They will also submit the Source of Funds certificate to Help to Buy confirming that the funds in place are being used for the intended purpose and not to purchase additional property.
Help to Buy will process the redemption statement and Source of Funds within 10-15 working days. Once your solicitor receives the redemption statement, they will complete the necessary paperwork to transfer the funds to your existing lender and pay off the mortgage.
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Completion statement and authority to complete
A completion statement is a document which summarises all financial transactions involved in the remortgaging process. It outlines received funds (the new mortgage funds), amounts paid out (existing lender mortgage payments), and the remaining balance (the amount of the Help to Buy equity loan being repaid - if fully paid then this will be 0). It's typically prepared by your solicitor and sent to both you and the lender.
Help to Buy will reply after 15 working days once an Authority to Complete has been requested. This will authorise your solicitor to complete the remortgaging process on your behalf, giving them the power to sign legal documents and transfer funds as required.
An Authority to Complete includes
- Your name and address.
- The name of your solicitor.
- A statement authorising your solicitor to complete the remortgaging process.
- A list of documents that your solicitor is authorised to sign.
- You'll typically need to sign the authority to complete the document before your solicitor can proceed with the remortgaging process.
Completion
Your solicitor will officially pay off your existing mortgage and the Help to Buy equity loan and then submit the necessary documents to the Land Registry to update the property's ownership and charges.
Form DS1
If the Help to Buy equity loan is paid in full, your solicitor will submit form DS1 to the Land Registry. This form removes the charge associated with the equity loan from the property's title. Once the Land Registry has processed form DS1, the property will be free of any charges related to the Help to Buy scheme.
Memorandum of staircasing
If you're only making a partial payment on the Help to Buy equity loan, your solicitor submits a memorandum of staircasing to the Land Registry. This document outlines the new ownership shares of the property after the partial payment.
For example, if you initially owned 80% of the property and the government owned 20%, and you've now repaid half of the equity loan, the new ownership shares might be 90% for you and 10% for the government.
The memorandum of staircasing will be registered with the Land Registry, updating the property's ownership records to reflect the new shares.
Once these steps have been completed, the remortgaging process will be finalised. You should receive confirmation from your solicitor that the new mortgage has been registered with the Land Registry and that the Help to Buy equity loan has been fully or partially repaid.
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