A Step-by-Step Guide to the Help to Buy Loan Repayment Process
If you have used the Help to Buy scheme to purchase your home, understanding the Help to Buy loan repayment process is essential. Repaying this government loan can feel complicated at first, but breaking it down step by step will help you manage it with confidence. Keep reading to discover how to navigate the repayment smoothly and what to expect.
What is the Help to Buy Loan?
The Help to Buy equity loan was designed to help buyers purchase a new-build home with just a 5% deposit. The government provides a loan of up to 20% (40% in London) of the property price, interest-free for the first five years. After that, the loan becomes repayable either when you sell your home or after 25 years, whichever comes first.
Understanding this is crucial before moving on to repayment details, so you know when and how the process begins.
Understanding the Help to Buy Loan Repayment Process
The Help to Buy loan repayment process generally starts once your interest-free period ends or when you decide to sell your property. At this point, you will need to repay the amount borrowed based on the property’s current market value, not the price you paid.
This means if your home’s value has increased, your repayment amount will also increase proportionally. Conversely, if the value has decreased, your repayment will be less, reflecting the lower property value.
Step 1: Notify the Help to Buy Agent
When you are ready to repay, or if you plan to sell your property, the first step is to inform the Help to Buy agent managing your loan. They will guide you through the repayment process and provide an estimate of what you owe.
This notification is important to start the formal valuation and repayment procedures.
Step 2: Arrange a Valuation
You must arrange for an independent surveyor, approved by the Help to Buy agent, to assess the current market value of your home. This valuation determines the exact amount you will repay, based on the percentage you borrowed originally.
Make sure your home is accessible and in a reasonable condition for the valuation, as this affects the repayment figure.
Step 3: Calculate the Repayment Amount
Once the valuation is complete, the agent calculates the repayment amount. Remember, this figure reflects the percentage loan you took, multiplied by the current home value.
For example, if you borrowed 20% and the house is now worth £300,000, you will need to repay £60,000.
Step 4: Organise the Repayment
You have a few options for repayment. You can repay in full, or if you are selling, the loan will be repaid from the sale proceeds.
It’s important to discuss your options with your lender or mortgage advisor to ensure you have the funds available.
Step 5: Complete the Repayment and Confirm Closure
Once repayment is made, the Help to Buy agent will confirm the loan is fully repaid and update the official records. If you have sold the property, this usually happens automatically during the sale completion.
Keep copies of all documents and confirmation letters for your records.
What Happens If You Don’t Repay on Time?
Failing to repay after the interest-free period or when selling can lead to additional charges. Interest will start to accrue after year five, initially at 1.75% and increasing yearly with inflation. It is best to plan ahead and avoid penalties by starting the process early.
Navigating Your Help to Buy Loan Repayment with Confidence
The Help to Buy loan repayment process can seem daunting, but following these clear steps will make it manageable. Always keep communication open with the Help to Buy agent and your mortgage provider, and make sure you understand your obligations well in advance.
If you are unsure about any stage of repayment, seek advice from a professional to avoid surprises.
Remember, properly handling your Help to Buy loan repayment is key to owning your home outright and moving forward with confidence.