The Help to Buy Equity Loan scheme, designed to assist UK first-time buyers with purchasing new-build properties, closed to new applications in 2023. While no new loans are being issued, millions of existing homeowners hold Help to Buy mortgages, which function differently from standard loans due to the presence of a government equity loan. Understanding how these mortgages integrate with the equity loan, how repayment works, and the potential risks of rising property values is crucial for all existing Help to Buy homeowners.

TL;DR: A Help to Buy mortgage is a standard residential mortgage used alongside a Government-provided equity loan (typically 20%). Although the scheme is closed to new applicants, existing owners must understand that the equity loan is interest-free for five years, after which fees commence, and the final repayment amount is linked to the property’s market value at the time of repayment or sale, meaning the debt may grow if the property price increases.

What is a Help to Buy Mortgage, and Am I Eligible for Repayment or Moving Schemes?

A Help to Buy mortgage refers to the portion of borrowing secured against a property purchased through the now-closed UK Government Help to Buy Equity Loan scheme. This scheme was an initiative designed primarily for first-time buyers to purchase new-build homes with smaller deposits.

Crucially, the Help to Buy mortgage is distinct from the Government’s equity loan. A borrower typically needed only a 5% cash deposit, obtained a residential mortgage for 75% of the property value (the Help to Buy mortgage), and the remaining 20% was provided by the Government as an equity loan. (In London, the equity loan could be up to 40%.)

Understanding the Help to Buy Equity Loan Scheme

The Help to Buy Equity Loan programme provided financial assistance, reducing the initial mortgage requirement for buyers. However, it is vital to recognise that this loan is secured against the property and functions as a share of the home’s value.

How the Equity Loan Works

The mechanism of the equity loan has significant implications for how the Help to Buy mortgage operates and what repayment will cost:

• Interest-Free Period: The loan is interest-free for the first five years. Homeowners only pay monthly interest payments on the 75% standard mortgage during this period.
• Interest Charges (Post Year 5): After the fifth year, borrowers start paying an annual interest fee on the equity loan. This fee starts at 1.75% and typically increases each year based on the Retail Price Index (RPI) plus 1%. Note that this initial fee only covers the interest; it does not reduce the principal equity loan amount.
• Repayment Linked to Value: When the homeowner eventually sells the property or remortgages to pay off the loan, they must repay the original percentage borrowed (e.g., 20%) of the property’s current market value.

If you are managing an existing Help to Buy property and need detailed guidance on repayment fees, you should consult the official government information regarding the scheme terms. You can find detailed guidance on managing your existing equity loan here: Government Help to Buy Equity Loan information.

Eligibility Criteria for the Closed Scheme

Since the main Help to Buy Equity Loan scheme in England closed to new applications in October 2022 (and all completions had to occur by 31 March 2023), the question of eligibility relates primarily to who was able to apply previously, or if existing homeowners are eligible for specific processes, such as ‘staircasing’ (partial repayment).

Before the closure, the primary eligibility requirements included:

• Applicants had to be first-time buyers (exceptions applied in earlier iterations of the scheme).
• The property had to be a new-build house or flat.
• The purchase price could not exceed the regional price cap (e.g., £186,100 in the North East, up to £600,000 in London).
• The property had to be the applicant’s only residence. Renting out the property was strictly prohibited.

If you are a current homeowner, your eligibility now focuses on remortgaging the 75% portion, paying off the loan, or moving property. Eligibility for these actions depends on your current financial standing and the terms set by Homes England and your mortgage lender.

The Impact of Help to Buy on Your Mortgage

While the Help to Buy mortgage (the 75% standard loan) is underwritten by a mainstream lender, the presence of the 20% equity loan affects the lending process and refinancing options.

Lender Requirements and Loan-to-Value (LTV)

Lenders view properties with an equity loan differently. Although the homeowner only contributes a 5% deposit, the lender’s exposure is typically 75%, making it a lower LTV risk for them initially compared to a high LTV (90% or 95%) standard mortgage.

However, when the interest-free period ends, homeowners often look to remortgage the 75% loan and, if possible, pay off some or all of the equity loan. This is where difficulties can arise:

• Valuation Stress: If the property value has risen significantly, refinancing 95% or 100% of the original purchase price (to cover both the 75% mortgage and the increased value of the equity loan) can be challenging.
• Specialist Products: Not all lenders offer products suitable for remortgaging properties originally bought via the Help to Buy scheme. You may need to consult a specialist broker familiar with these complexities.
• Affordability: When remortgaging to pay off the equity loan, lenders will assess your income against the new, larger debt amount.

Repaying the Equity Loan: The Cost of Appreciation

The most important financial consideration for Help to Buy homeowners is the proportional nature of the government equity loan.

The amount you repay is always the same percentage of the property’s current market value as the percentage you originally borrowed. This means if the house increases in value, so does your debt to the Government.

For example, if you bought a £200,000 property with a 20% equity loan (£40,000):

• If the property is now valued at £250,000, the 20% repayment is £50,000.
• If the property is now valued at £180,000 (a rare scenario but possible), the 20% repayment is £36,000.

The Process of Staircasing

Many homeowners choose to make partial repayments of the equity loan, a process known as ‘staircasing’. This allows you to gradually reduce the Government’s stake in your property and avoid the escalating debt associated with rising property prices.

Staircasing must be done in chunks, usually a minimum of 10% of the property value, and requires a professional valuation of your property, which the borrower must pay for.

If you do not pay off the equity loan when the interest fees start (after year five), you must continue paying those fees until you sell the property or pay the loan off fully by remortgaging. Failure to keep up with these required fee payments could lead to legal action by Homes England.

People also asked

Can I still apply for a Help to Buy Equity Loan now?

No, the Help to Buy Equity Loan scheme closed to new applications in England in October 2022, and all purchases had to be completed by March 2023. Other regional schemes, such as Help to Buy (Scotland) and Help to Buy (Wales), have also closed or are winding down.

What happens after the five-year interest-free period ends?

After the first five years, you begin paying a monthly interest fee on the government equity loan. This fee starts at 1.75% of the outstanding loan amount and increases annually by the Retail Price Index (RPI) plus 1%.

Is the Help to Buy equity loan interest calculated on the original amount or the current value?

The annual interest fees (starting after year five) are calculated based on the original equity loan amount. However, the final principal repayment of the loan itself (when you sell or pay it off) is calculated as a percentage of the property’s market value at that time.

Can I rent out my Help to Buy property?

Generally, no. The Help to Buy Equity Loan required the property to be your main, only residence. Subletting or renting the property out is a breach of the loan agreement, unless you receive specific, written permission from Homes England due to exceptional circumstances (e.g., military service).

Do I have to use a specific lender for a Help to Buy mortgage?

While only specific lenders participated in the scheme initially, once you are ready to remortgage the 75% loan or staircase out of the equity loan, you can approach any lender that offers suitable products for Help to Buy properties. This often requires specialist knowledge due to the second charge on the property held by the Government.

Summary of Risks and Next Steps

If you are an existing Help to Buy homeowner, managing this type of mortgage requires careful financial planning, particularly when approaching the end of the interest-free period.

The main risk associated with a Help to Buy mortgage is that if your property significantly increases in value, the amount you owe to the Government will also increase, potentially making future repayment more expensive than initially anticipated. Furthermore, failure to meet the interest fee payments once they commence could lead to default action.

If you are nearing the end of your five-year interest-free period, or if you wish to staircase, seeking independent financial advice from a mortgage broker specialising in Help to Buy refinancing is highly recommended to understand your options.