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Help to Buy homeowners

Journalist: Melissa Lawford, The Telegraph

ended 09. August 2023

What is happening when people who purchased using the Help to Buy equity loan come to the end of their five-year interest-free period? How problematic is it for these homeowners as they get hit by high mortgage rates just as they have to start paying interest on their equity loans? Is it pushing these homeowners to sell up? How difficult is it for them to remortgage when lenders are taking into account their equity loan debt?

5 responses from the Newspage community

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Darryl Dhoffer
Founder at The Mortgage Geezer
For those clients who purchased with the Help To Buy Scheme and the 5 year Interest-Free period is at an end today (as an example) they are now seeing a Retail Price Index (RPI) up to June 2023 of 13.7%. Factor in an additional 1% loading from Help To Buy, clients are seeing an interest rate of 14.7% on any unpaid Help To Buy Equity Loan. These are big numbers compared to what the RPI was back in June 2018 which was 2.9%. So for those clients maxed out on borrowing when they first bought the property, this is extremely worrying, having to factor in these extra interest repayments for Help To Buy Loan, along with an uplift on their existing mortgages repayments with higher rates, for many clients I'm talking to its causing many to sell their homes to repay the debts. I do feel the government could look to intervene here and look to extend the interest free period for Help To Buy loan clients, for those unable to remortgage and clear, this loan.
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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Many help to buy homeowners who are finding themselves stuck. Since they purchased their property, they have had material changes in circumstances such as starting a family, carrying credit card debt, or getting cars on finance, all of which materially affect mortgage affordability calculations. Whilst the plan initially was to remortgage in the future to purchase the equity share, many are finding this just isn't possible.

If the equity share cannot be purchased, help to buy homeowners are not able to do normal mortgage things such as switch lenders easily, debt consolidation to ease pressure on monthly outgoings or raise money for any other reasons. People stuck in this position need to accept whatever is available through their existing mortgage lender and in addition, start to pay the help to buy interest payments after the first 5 years, which are RPI linked. If this is unaffordable, the sale of the property is the only way out and many may well choose this route.
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Lee Gathercole
Co-Founder at Rebus Financial Services
This is going to be a big problem for homeowners who were planning to pay back their equity loans in the 5th year after their interest-free period. With now higher interest rates and the need for additional borrowing to repay the help to buy this is going be a frightening jump in mortgage payments for most. We may start to see mortgage homeowners keep the equity loan in place and just pay the interest on this until rates drop again or we may see them borrowing additional funds and increasing their mortgage term at the same time to help cushion the blow.
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Gary Boakes
Director at Verve Financial
The plan originally for most customers would have been to pay back the HTB via a remortgage, but with the initial HTB rate only being 1.75% and current interest rates about 6% it is not making much sense to buy back at this stage. The majority of lenders at the moment are looking to keep existing business so we are in a product transfer driven market, so it is likely that their existing lender is going to be the cheaper option.
If we have clients looking to buy back the HTB and we have had a handful this year, the process has been lengthy due to the delays with HTB and would highly recommend that you have a solicitor that has delt with the process previously, the free legal solicitors have been a shambles with any remortgages involving HTB.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
The actual mechanism of securing the mortgage isn't too painful with plenty of options out there.

The real issue is that the administration of the Help to Buy scheme has been passed to a new business that seems even more inept than the previous firm. It's taking so long to obtain the necessary legal paperwork from them that clients are genuinely facing months of delays all whilst paying hundreds of pounds over the odds stuck on their lenders standard variable rate. We've heard stories of clients waiting 6 weeks to be told forms are missing and then being advised it will be another 6 weeks from receipt of correct paperwork.

Genuinely, if you have a Help to Buy Equity loan with a rate ending, we'd be suggesting getting the ball rolling 6 months out and ensure your solicitors start the conveyancing work with plenty of time to spare.