Your options at the end of the five-year interest-free Help to Buy period
If you took out a Help to Buy Equity Loan to purchase your property, you will be aware that it comes with a five-year interest-free period. So, what are your options when this interest-free period comes to an end?
What is a Help to Buy Equity Loan?
If you had found a new build house you wanted to buy but did not have a high enough deposit, you could have been eligible for a Help to Buy Equity Loan. This government scheme gave purchasers an interest-free loan for the deposit amount of 20% (40% if they were purchasing in London) if they already had a 5-10% deposit to put down.
For the first five years after committing to the Help to Buy offer, the loan was interest-free. Going forward, the interest rate will be 1.75% and will increase by 1% a year, in line with the Retail Price Index. This rise in cost will impact many people, especially as the country is currently struggling with a cost of living crisis.
What are your options when the five-year period runs out?
There are four main options to consider when the interest-free period runs out:
1-Pay the interest
If you have either saved up the cost of the interest over the five years or accounted for it going forward, the simplest option is to start to pay the interest. Unfortunately, this might not be the best solution in the long term as the costs will continue to rise and you will end up paying substantially more.
2-Make a help to buy equity loan repayment
Again, if you have saved up the money over the five-year period, you may have planned to pay off the loan in its entirety. The first thing you will need to do is get your property valued, as the amount you need to repay will be affected by whether your home has increased or decreased in value. The results of this may mean that you are now unable to pay off the loan in full but you can pay half of it at any one time. Unfortunately, no smaller increments are allowed. It is often wise to obtain professional advice on help to buy equity loan repayment.
3-Sell the property
The plan for many homeowners who took advantage of the original scheme was to move home once the five-year period was up. This is a good idea if your property has risen in value but if it has decreased, you may run the risk of negative equity and also being unable to afford a deposit on your next purchase.
4-Remortgage your home
There are only a limited number of lenders that will offer to remortgage if you have a Help to Buy loan and for this, you must have at least 10% equity in your property. There are also additional fees to be taken into account when remortgaging your home.