How do I pay off my help-to-buy equity loan?
The Help to Buy equity loan scheme has been a popular choice for many homebuyers, offering an interest-free loan for the first five years of homeownership.
If you decide to repay (redeem) the loan, whether you are selling, or simply wishing to reduce debt, you'll need to follow a specific formal process. The following is a concise, step-by-step guide, you must follow when paying off the loan.
What is a Help to Buy equity loan?
Help to Buy was a government-backed equity loan scheme that helped first-time buyers buy their first home. Although the scheme was phased out in March 2023, anyone with an equity loan in place after this date will still have to follow the formal Help to Buy equity transfer process.
When can I repay my equity loan?
You can pay off your Help to Buy equity loan at any time before the end of the loan period, typically 25 years from the date you took the loan out. Many homeowners choose to repay their loan early when they sell their property, or by remortgaging when the initial 5-year interest free period comes to an end.
Should I pay off my loan early?
Deciding whether to pay off your Help to Buy equity loan early depends will depend on your financial situation and the state of the housing market.
At the end of the initial 5-year interest free period, you will have to start paying interest on the outstanding balance of the loan.
To illustrate how interest is calculated after the initial 5-year interest-free period, we will use an example of a £60,000 equity loan.
From the start of the 6th year, you begin paying interest at a rate of 1.75%, which then increases annually by the Consumer Prices Index (CPI) plus 2%.
Assuming a CPI rate of 2% for simplicity (the average is actually 2.4% from 2013 to 2023 Sce: ons.gov.uk), the interest rate for the first year would be 1.75%, and it would increase by 4% each subsequent year (2% CPI + 2%).
Year 6:
- Initial interest rate: 1.75%
- Interest for the year on £60,000: £60,000 * 1.75% = £1,050
Year 7:
- Next year's interest rate (1.75% increased by 4%): 1.75% * 1.04 = 1.82%
- Interest for the year on £60,000: £60,000 * 1.82% = £1,092
The following table continues this pattern for the first 5 years of interest payments:
| Year | Interest rate | Annual interest repayment |
|---|---|---|
| 6 | 1.75% | £1,050 |
| 7 | 1.82% | £1,092 |
| 8 | 1.89% | £1,134 |
| 9 | 1.97% | £1,182 |
| 10 | 2.05% | £1,230 |
By extrapolating the annual increase, the interest rate you would be paying in Year 24, starting from an initial rate of 1.75%, would be approximately 3.55%
The above example also assumes that you do not pay off any of the capital in your equity loan.
You can pay off your equity loan with your own funds or with a mortgage.
Repaying the loan with a remortgage
If you are remortgaging to pay off your equity loan, there are a few addition steps discussed in this article.
Whether it would be worth remortgaging the equity loan will, therefore, depend on the interest rate you can secure from your lender.
You can calculate and compare the financial impact of different interests rates with our mortgage calculator.
Repaying the loan with your own funds
If you have the funds to redeem your equity loan without remortgaging, the decision may come down to the amount of interest (less tax) that you can earn on your cash, less the interest you pay on paying off your loan.
How is the repayment amount calculated?
You can pay off some or all of your equity loan at any time, although the smallest repayment you can make is 10% of your property’s current market value.
The current market value must be assessed by a surveyor in a RICS Property Valuation report.
For example:
If you bought a home for £250,000 with an equity loan percentage of 20%, your equity loan was £50,000.
If your property is valued at £300,000 when you decide to pay off the full loan, you will have pay 20% of £300,000 = £60,000.
If you want to pay off part of the loan - say 10% - you will have pay 10% of £300,000 = £30,000.
What if the property is worth less than I paid for it?
If your property's current market value drops below the purchase price, the repayment amount for your loan will decrease accordingly.
For example:
If you bought a home for £250,000 with an equity loan percentage of 20%, your equity loan was £50,000.
If your property is valued at £200,000 when you decide to pay off the full loan, you will have pay 20% of £200,000 = £40,000.
Who do I repay the Help to Buy loan to?
Homes England (formerly The Homes and Communities Agency 'HCA'), is the public body responsible for administering and overseeing the Help to Buy equity loan scheme.
Lenvi (previously Equiniti Gateway Services) has been appointed to oversee the Help to Buy repayment function by Housing and Communities Agency.
When you bought your property, your mortgage lender will have registered a legal charge at HM Land Registry. The HCA will also have a charge over your property, and this charge will be removed by Lenvi when you pay off your equity loan.
What is the process of paying off my Help to Buy equity loan?
Although the scheme will be phased out in March 2023, anyone with an equity loan in place after this date will still have to follow the Help to Buy equity transfer process:
Step1. Get a RICS property valuation
Before you can repay your equity loan, you need to know the current market value of your property. This is because the amount you owe on the equity loan is a percentage of your property's current market value, not the amount you initially borrowed.
You'll need to obtain a formal property valuation from a RICS (Royal Institution of Chartered Surveyors) accredited surveyor. The valuation cannot be a bank or mortgage lender valuation.
The surveyor must:
- be an independent RICS qualified surveyor who is not associated with an estate agent, and is not be a relative or friend.
- inspect the inside of the property as well as the outside.
The valuation report must:
- Be on headed paper, signed by the surveyor and addresses
- Include a date of valuation
- include 3 or more comparable (like-for-like) properties and sale prices for properties that are within 2 miles of your property and are the same age, size and type.
When you order your property valuation, make sure you tell your surveyor that the valuation is for a Help to Buy equity loan repayment.
How long is the valuation report valid for?
The RICS property valuation is valid for 3 months from the date of the report.
Lenvi will need to receive a copy of the valuation within 5 working days of the date of issue of the report.
The report can be posted to:
Help to Buy Customer Service team
PO Box 5262
Lancing
BN99 9HE
Given the time stipulation, however, we recommend a digital copy of the report is sent by email to: customerservices@myhelptobuyloan.co.uk
What if the valuation report expires?
If the valuation expires, Lenvi will give you a 3 month extension if you send them a 'desktop valuation'.
A desktop valuation can be conducted by the same surveyor without a physical inspection of the property. Instead, it relies on online resources, databases, and market analysis to determine whether the property's value has changed since the initial valuation.
Read more:
Get a property valuation quote
Step2. Instruct a Help to Buy conveyancing solicitor
Paying off a Help to Buy loan is similar to the legal transfer of equity process. You will need to instruct a conveyancing solicitor to complete the process.
If you are paying off your equity loan with a remortgage, you will need to make sure that your solicitor is on all
Once you have found a solicitor, you must check whether the solicitor is an approved member of your mortgage lender's panel.
Find out if our panel solicitors can act for your mortgage lender
Approved by over 100 more
Step3. Complete the Equity loan repayment application form
You will need to complete the Help to Buy Equity Loan Repayment Application Form, available on the Help to Buy website or by direct download here.
The form will ask for details of:
- your solicitor
- your property
- your loan
- the property valuation
- where your money is coming from, such as from savings.
The form is then sent to Lenvi, together with the administration fee of £200 and the RICS valuation report to:
Help to Buy customer services, PO Box 5262, Lancing, BN99 9HE
Or by email: customerservices@myhelptobuyloan.co.uk
Step 4: Redemption letter
Once your form, payment and valuation have been received by Lenvi, a redemption letter will be sent to your solicitor.
This letter will confirm that you can pay off your loan (in part or in full), the percentage of the outstanding loan, and the amount you must pay to redeem the loan.
Step 5. Your solicitor completes the conveyancing process
Your solicitor will handle all of the legal work required to repay the loan. The process is as follows:
- Review, sign and return the legal undertaking to Help to Buy.
- Receive and review the ‘Authority to Complete (ATC)' letter within 5 days of providing the undertaking.
- Transfer the funds to repay the loan and any other interest and admin charges.
- Send you the legal completion documents and statements
- Lenvi will then apply to HM Land Registry (HMLR) to remove the legal charge over your property.
