Is your Help to Buy mortgage deal coming to an end soon or perhaps your Equity Loan 5-year interest free period is expiring? Maybe you’re just curious to know the Equity Loan redemption process, either way this Blog will tell you everything you need to know!
When your Help to Buy mortgage comes to the end there are a number of options available to you. Like with a traditional mortgage, you could transfer to another mortgage product with the same lender (known as a product transfer!), or you could to switch to a new lender if they can offer you a more preferential deal. However, when you have the Help to Buy equity loan, there is another option which is to remortgage and repay the Help to Buy equity loan by consolidating it with your mortgage.
When choosing to repay your Help to Buy equity loan, one of the first things you need to do is understand how much your property is worth because this will determine how much you need to repay to Help to Buy. If you took the full 20% equity loan then you will need to pay back 20% of the current property value rather than 20% of the original purchase price. So here is an example, if you purchased the property at £300,000, the original equity loan amount would have been, £60,000. If the property is now worth £320,000, the equity loan you’ll need to repay back will be £64,000 (20% of the current property value).
When you are remortgaging and consolidating your Help to Buy equity loan, it’s one of the very few times where you may not necessarily want your property value to be as high as possible as in turn you will repay back more to Help to Buy. Once you understand the current value of your home and have calculated the 20% you need to repay on your equity loan, you should then engage with a mortgage broker. A good mortgage broker can research the mortgage market and recommend the most suitable remortgage deal to enable you to consolidate the equity loan.
Often lenders class the consolidation of the equity loan as debt consolidation and many lenders have some quite strict criteria and policies surrounding debt consolidation, so it’s important that you deal with a mortgage broker that understands the Help to Buy world. Once your mortgage broker finds a suitable mortgage product for you, they’ll go ahead and arrange for it to be approved in principle ahead of submitting the full mortgage application. The lender will conduct a number of underwriting checks, the processing of your application could take anything from 2 to 10 weeks. You will also need to appoint a solicitor to conduct the required legal work, again it’s important to use a solicitor that is familiar with the Help to Buy redemption process. Many lenders offer ‘free legals’ as part of the remortgage package but this free work does not cover the Help to Buy redemption process. The cost of appointing your own solicitor will vary but is likely to be in the region of £400 – £600.
Once all of the lenders underwriting checks are complete, if it’s approved, you will then receive your mortgage offer, you’ll get a copy of that mortgage offer and so will your solicitor.
In the meantime, your mortgage broker will be able to help you initiate the redemption process with Help to Buy which involves instructing a RICS chartered surveyor to conduct a Help to Buy valuation. The cost of this varies but in my experiencing is between £250-£300. The surveyor will visit your property and subsequently issue the required valuation report.
It is worth noting that the official Help to Buy process suggest that the very first thing you should do when considering redeeming your equity loan is to instruct the RICS chartered surveyor to value your property. However, as the valuation report is only valid for 3 months and the entire remortgage process is likely to take longer than 3 months, the valuation report will expire before the remortgage process is completed and you will incur you further costs to have your property revalued. This is why my advice to you is to follow my process set out in this blog.
The next step is to send the valuation report, a form known as ‘FORM B’ (which can be provided by your broker) along with the £200 administration fee to Target, who are Help to Buy’s administration agent. Once received, Target will kick start the redemption process and issue a redemption letter to your solicitor. The redemption letter along with the mortgage offer is enough to enable the solicitor to apply for completion with Help to Buy and the mortgage lender. This concludes the Help to Buy remortgage and equity loan consolidation process.
My closing piece of advice to you is to ensure you engage with a mortgage professional that has experience with redeeming Help to Buy equity loans, this will save you both time and money.
I hope you found this blog useful. If you’ve got any other questions regarding the Help to Buy equity loan remortgage process then feel free to get in touch.