Copy article

Help to buy equity loans and home improvements

ended 14. March 2023

A Newspage broker said on this morning's call that he has had a few clients over the past fortnight or so who have wanted to remortgage to make home improvements but, because they have a help to buy equity loan, are required by most lenders to pay that off before they can access additional funds. However, the rates on equity loans are typically far lower than those available on the open market so some borrowers are deciding to stick with the equity loan and raise the additional funds via a lender — such as Leeds, TSB and Barclays — who will allow them to raise funds while leaving the equity loan untouched. Are you seeing examples of this? Any general thoughts, whizz them across. 

6 responses from the Newspage community

Copy all

Copy

Editor
Rohit Kohli
Director at The Mortgage Stop
We've had a couple of interesting conversations with Clients recently with Help to Buy Equity loans where they wanted to buy an increased share but as the interest rate on their equity loan was so much lower it didn't make sense. In a couple of these scenarios, where they wanted to increase borrowing for home improvements, we found only a handful of lenders would consider this - most wanted the equity loan paid off first. We're expecting to see more clients in this scenario and with consumer duty in mind, there are going to be some clients in a bit of a quandary regarding what they want to do.
Copy

Editor
Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
If you are not with one of the lenders who will advance, consider the second charge market for alternative funding. Some lenders will accept 3rd charge ranking behind the mortgage lender and Homes & Communities Agency, and others will lend using unilateral notices or equitable charges rather than legal charges.
Copy

Editor
Justin Moy
Managing Director at EHF Mortgages
The Help to Buy scheme does add a layer of complexity to remortgaging, and additional borrowing for home improvements can be tricky given the number of restrictions that can exist in the scheme itself. I have seen many clients unable to improve their homes as permission is typically required by the HSE , and the general rule was that if you can afford to complete an extension to the property, then you can afford to repay the equity loan! Need to check the details of any HTB agreement to ensure you are compliant and don't forget that any improvements that are made will only improve the value, and 20% of that value will be repaid on the sale in the future.
Copy

Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Whenever I have a conversation with people who own their home on the Help-To-Buy (HTB) scheme I'm always at pains to explain to them what an equity loan actually means. Yes, the interest rate after the initial five years interest-free period is very low, but you are not just paying the interest, every time the value of your house increases your cost to repay the HTB loan increases too, so you may pay very little interest but delaying the purchase of the remaining equity could still cost you thousands over just a few years as the price of your house rises. For example, a £40000 HTB loan to buy a £200000 property is a £50000 debt to repay once the property rises to £250000, or £60000 once the property gets to £300000 - so the interest paid could be small, but the extra equity you give away by delaying repayment could be huge.
Copy

Gary Bush
Financial Adviser at MortgageShop.com
In our opinion the Help to Buy system has so many flaws thank god it is now ending! We found the builders pressganging buyers into using their related advice offerings - often services with limited panels of lending routes, the cherry-picking of applicants before agreeing to their buyers' offers on a government-backed scheme, and the equity owner being handed off by the government to private entities all too much to avoid an effective system. With some lenders now enforcing the repayment of the equity portion before allowing access to home improvement loans it looks a little like one of the rare problems with shared ownership in that Housing Associations can block owners from remortgaging to consolidate their debts is appearing with Help to Buy. The government needs to think harder before reintroducing schemes like this.
Copy

James Vince
Managing Director at Castle View Finance
Help-to-buy and the Equitly support business/providers is a niche that has recently appeared in the mainstream mortgage world. Providing clients with solutions at the front-end purchase, but, it is the advisor that should be making the clients fully aware of the schemes they have signed into. We receive several calls from new clients that have bought the house of their dreams but now feel trapped with pay-back conditions, many conditions brush aside when signing on the dotted line. At this stage quality advice and recommendations is so important, as understanding the current mortgage conditions and what the alternative options are. This in many ways can also seem like a self-inflicted mortgage prison, which can be difficult to extract them from due to the cost of living and current affordability for a remortgage. Is This the next PPI?