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Repaying your Help to Buy equity loan

Posted 7 April 2016 by Keith Osborne

WhatHouse? takes you through what you need to know about paying back the equity loan from the government's popular Help to Buy scheme...

Before you consider applying for your Help to Buy equity loan, it's helpful to know when you can pay it off and how much it could cost you.

What's the time limit for paying off my Help to Buy equity loan?

The loan has to be paid off in full either when you sell your home or within 25 years of the loan being taken out, whichever comes first.

What will it cost me to pay off the loan?

If you pay off the loan within the first five years then you don't pay any interest on it. After those first five years, the loan will increase by 1.75% (of the loan's value) per annum plus 1%. The loan rate then increases year on year with the retail price index (RPI). These interest payments are in addition to your mortgage repayments.

An example of what you should expect to pay

  • You receive a Help to Buy equity loan of 20% on a property valued at £250,000.
  • This means you receive a loan of £50,000
  • When you decide to sell the property, it's now worth £300,000
  • You have to pay back 20% on £300,000 (not £250,000)
  • This means you pay back £60,000 (instead of £50,000)

Similarly, if the price of your property went down, so the amount you would have to pay back goes down. In regards to interest payments, if the RPI after six years was at 2%, then you would pay back 3% interest on the property value on top of the mortgage repayments. With house prices generally rising, it's why it can be better paying off the Help to Buy equity loan sooner rather than later.

How do I pay off the equity loan?

A Help to Buy agent appointed by the government will get in touch with you before the interest fees are due in order to set up a direct debit from your bank. You will receive a statement regarding your loan each year. You may also be asked to pay a monthly management fee by your lender which can be as little as £1 a month until the fee is fully paid.

Search for Help to Buy properties here or find more information about mortgages on our dedicated mortgage section.

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