Many homeowners who used the Help to Buy scheme are now approaching the repayment stage. While the initial five-year interest-free period was helpful, repaying the loan isn’t always simple.
If you don’t prepare, sudden costs and timing issues can sneak in. Knowing what to expect in advance can save you stress and money. Keep reading for five essential things to think about before paying it back.
Understand When Interest Begins
The government loan is interest-free for the first five years. After that, you’ll pay 1.75% of the loan amount in year six, with the rate increasing each year based on the Consumer Prices Index plus 2%. Many homeowners forget that this isn’t like a typical mortgage. Interest doesn’t go towards the balance. You’re paying extra costs without reducing the loan itself.
Planning repayment before interest kicks in can help reduce the total cost.
Consider Your Remortgaging Options
Many people choose to repay by remortgaging. If you go this route, speak to a mortgage adviser who understands Help to Buy loan repayment rules. Some lenders don’t accept remortgages that include equity loan repayment. Others may offer better rates but require a larger deposit or different affordability criteria.
Compare deals carefully, and factor in any early repayment charges from your current lender.
Timing A Valuation Correctly Is Crucial
Your repayment is based on a percentage of your home’s market value at the time you choose to repay. If your property has gone up in value, the repayment amount will too. That’s why timing matters. A professional RICS valuation will be required, and it’s only valid for three months.
To avoid more valuation fees, monitor the market and choose a time when property prices are stable or lower.
Budgeting Beyond The Loan Amount
The total you repay isn’t the only cost. You’ll also face charges for the valuation report, solicitor’s fees, Land Registry updates, and possible mortgage arrangement fees. It’s easy to focus on the loan figure itself, but these added costs add up quickly.
Set aside a realistic budget for all related expenses so that you’re not caught off guard.
Be Clear On Long-Term Plans
Before repaying, think about your long-term intentions. Are you planning to move soon? Do you want to stay for the next five or ten years? If moving is on the cards, repaying the loan may not be necessary right now, as the equity loan is settled during the sale. But if you’re staying, clearing it now could protect you from rising interest and give you more control over your property.
Final Words
Paying off your Help to Buy loan needs clear planning. From understanding the cost structure to timing your valuation, every decision matters. Don’t rush in. Assess your finances, speak to professionals, and weigh up all the angles.