Everyone needs help with getting on the property ladder. If for you, this has come in the form of the Help-to-Buy loan scheme funded by the UK Government, you may now be looking at repaying the loan in full or in parts. This can be pursued either when you are re-mortgaging, selling the property, or using your own money.
You can visit the gov.uk website to understand a bit more about the Help-to-buy scheme.
Risk/Challenge
The increase in the value of your property can feel financially reassuring because it also means that the value of your ownership will rise but with the Help-to-Buy loan you have, the Government’s share of your ownership also rises.
The Help-to-Buy loans are not interest-free, however, there is no charge of interest for the first 5 years but thereafter interest is applied from the 6th year. This means that the Government’s share of your ownership increases further.
Example
A 5-bedroom detached house in a new housing estate development was bought by a first-time buyer, in July 2017 at a purchase price of £291,000 using a mortgage with an initial product term of 5 years and a Help-to-Buy loan at 20% of the purchase price (which equated to £58,200).
After the first 3 years of buying the property, the buyer considered paying back the Help-to-Buy loan in full and at that time the market value of the property was £315,000 which meant that the value of the 20% share was then £63,000. Rather than pursuing the payback, the buyer opted to delay until the mortgage product was due for renewal thereby avoiding incurring an early initial repayment penalty and, thinking that property values may fall over the succeeding years, in view of the economic conditions caused by the pandemic.
When the mortgage was up for renewal in October 2022, the buyer had little or no option but to tackle the issue of the Help-to-buy loan. At that time the market value of the property had risen to £375,000 and accordingly, the Help loan value had risen to £75,000.
Solution
Looking at the above experience, if considered to pay back the loan after 3 years, the buyer would have ended up paying £12,000 less than the amount that was eventually paid to settle the loan in full.
At any stage you are considering your repayment options, you will need a market valuation of the property. This is where our services as qualified and registered surveyors of the Royal Institution of Chartered Surveyors (RICS) will be required. This is an essential requirement from the Government should you want to repay the Help-to-Buy loan.
Contact Information
Should you want to discuss your case further, please get in touch with the team at valuations@argroup.co.uk