Although now closed to new applications, the (2013-2021) Help to Buy Equity Loan scheme for England has been a huge success since it was launched in April 2013, with over 328,000 properties purchased with assistance from government-backed five-year interest free equity loans.
Unfortunately, those coming to the end of their five-year interest-free period will have to start paying interest on the remaining equity loan amount. Interest is charged at 1.75% on the outstanding amount in the first year, with the fee rising by inflation, based on the Retail Price Index (RPI), plus 1% each year after that. This creates an additional monthly outgoing for customers.
Plus when repaying the equity loan amount, whether partially or in full, the customer may find their home has increased in value which could lead to customers having to pay back more than they originally borrowed.
Could staircasing be the answer?
There are several options for borrowers looking to repay their Help to Buy Equity Loan early, including using their own funds to repay some or all of the equity loan, remortgaging with their current lender and repaying all or part of the loan, or capital raising with another lender to repay it.
The good news is that there’s no immediate requirement to pay this loan back once the five-year interest-free period comes to an end. However if your customer isn’t in a position to repay their loan in full yet wants to reduce their equity loan, they can choose to repay part of the loan. This is known as ‘staircasing’ and is where the borrower repays part of the outstanding loan amount, subject to the scheme rules.
There are rules about how much can be repaid and what percentage of the equity loan needs to remain with the government post-completion, should the amount not be repaid in full, so we suggest you familiarise yourself with these limits prior to speaking with your customers.
Remember that capital raising other than to staircase or carrying out many home improvements are not allowed whilst the equity loan remains outstanding. The only exceptions include adapting a home due to disability, or minor cosmetic changes such as a new kitchen or bathroom.
How Precise Mortgages could help
We’re able to support customers wishing to capital raise to staircase and repay a portion of their equity loan, as well as offering remortgage options for customers looking to repay it in full.
The benefits of our range include:
• Available to employed and self-employed customers with a minimum 12 months trading
• Customers with defaults and CCJs registered over 24 months accepted
• Unsecured credit arrears not counted however may affect credit score
• Houses and flats up to 20 storeys accepted
• Available in England, Wales and Scotland (see Scottish scheme terms)
• Loan term up to 35 years available
By offering a diverse range of award-winning products and dynamic solutions, we could help where other high street lenders can’t.
With straightforward criteria and clear decision making, you can rely on our dedicated sales team and online support to get the answers they need. Because no matter the challenges, we’re on the case.