Help to Buy Equity loans offered a period of five years interest free, but what happens when this ends? What should you do to avoid problems and protect your home?
What is a Help to Buy Equity Loan
This is a type of loan that was introduced to help people buy a home if they didn’t have a large deposit. A government loan of 20 per cent or 40 per cent in London could add to a five to ten per cent deposit to help someone to get on the property ladder.
Applications for the loans have now closed, but many people made the most of the 5-year interest free period. These people are now facing the fact that interest is then added at 1.75 percent and then goes up according to the Retail Price Index plus a one per cent additional rate year on year. If you are one of these people, what can you do to manage these additional costs in the best possible way?
Pay the Interest
Some people will have saved up the interest and have savings to pay the extra costs. They will, however, have to decide if this is the best use of their savings if they intend to stay in their property for the long term. If you are in a position where you’re worried about making the repayments, help is available from sources such as Citizens Advice.
Pay off the loan
Other people may have saved enough money to pay off the initial equity loan. It must be noted, however, that you cannot pay off this type of loan in instalments. Instead, you can either repay all of it or half of it with nothing in between. You will need to get your property valued to determine the amount owed. This will be based on the current value of your home.
Sell the property
There are many people who have planned, even when initially instructing a help to buy solicitor such as those at Sam Conveyancing, that they would stay in the property for the 5-year interest-free period and then sell up. This may be a good idea if the property value has gone up but may be problematic if prices have fallen.
Remortgage
If you don’t want to make the help to buy repayment plus the interest, you could think about remortgaging. Unfortunately, however, there is a shortage of lenders who will deal with this. There are four banks that could lend, but they demand that you have at least ten per cent equity in the property and this does not include the original deposit.
If you do think that you might want to remortgage at the end of the 5-year period, then you should overpay as much as you can while no interest is added. This means that you will get the best rate possible when it is time to remortgage. Just remember, however, that overpayments may incur fees, as will remortgaging.
Conclusion
What you do will ultimately depend on your own personal circumstances and market conditions. Consider your financial situation, how long you plan to stay in the property, and the current market value of your home and always remember to get professional advice.