Selling A Home With Help To Buy Equity Loan - HomeOwners Alliance (2023)

The Help to Buy equity loan has helped thousands of buyers to get onto the property ladder, but what happens when you are selling a home with a Help to Buy Equity loan? Who do you contact? What are the additional costs? And what else do you need to be aware of?

Selling A Home With Help To Buy Equity Loan - HomeOwners Alliance (1)

The Help to Buy equity loan can be a great help to buyers for whom homeownership seems an impossible ask. But while the scheme is well publicised not a lot is known about what happens when you come to sell your Help to Buy property. If you are thinking of applying for an equity loan and are wondering how this could affect you moving forward or are already part of the scheme and thinking of selling your property – read on.

The Help to Buy equity loan in brief

With a Help to Buy equity loan, you can borrow up to 20% of the value of the property interest-free for the first five years, which means that you could buy a home with just a 5% deposit, and a mortgage for the remaining 75%. You must be a first-time buyer and there are price caps depending on where you live. For more details of eligibility and regional price caps see our guide Help to Buy equity loan 2021-2023.

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Do I have to pay back my Help to Buy equity loan before I sell?

The Help to Buy Equity loan must be repaid after 25 years or at the same time as you sell your home.

When you buy a home with Help to Buy, a second charge is placed on your property title at the Land Registry. This means you can’t sell your home unless the HCA is repaid their loan percentage. Unless you have repaid your loan in full through staircasing (the process whereby homeowners repay a loan in part via multiple payments), you will repay the Agency’s equity loan simultaneously when you sell.

How much of my Help to Buy equity loan will I have to pay back?

If you initially purchased your home with a 75% mortgage and a 5% cash deposit and have made no other staircasing repayments, you will repay the HCA 20% of the value at the time you sell.

Who do I contact when I want to repay my Help to Buy equity loan?

For any decisions or rulings relating to the equity loan scheme, you will need to contact Target – the firm the HCA uses for all administrative duties regarding selling your home with a Help to Buy Equity loan. You can do so by emailing Target.HCA@targetgroup.com or by calling 0345 848 0235.

What happens when selling my home with a Help to Buy equity loan?

You can sell your home on the open market just as you would with a home not bought with a Help to Buy equity loan. Once you have received an offer you’ll need to have the property valued by a chartered surveyor. You must then let Target know the amount of the offer you have received and that you have instructed a surveyor. Target will then contact you once it has received the valuation report to let you know what happens next.

Find local chartered surveyors to carry out a valuation survey

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Moving your mortgage

When you bought your Help to buy home your mortgage deal will likely have been one specifically available for Help to Buy properties. When selling your Help to Buy home and buying a non-Help to Buy home, you may find that you have to change your mortgage. While there are some Help to Buy deals that are portable and can therefore be moved to your new property, a number are not and so would require a new deal to be taken rather than the original rate ported across. However, it’s worth noting some lenders will refund any early repayment charge (ERC) if you take another deal with them, subject to certain requirements.

What are the other costs involved of selling my help to buy equity loan home?

If you choose to sell your property without having first repaid your equity loan, then the full amount (minus any redemption payments you may have previously made) will be deducted at the time of sale. This is calculated as a percentage of whichever total sum is highest- either the agreed sale price or the current market value.

You will be responsible both for obtaining this valuation and making sure that the surveyor you use is a RICS qualified member. If you don’t do this you risk the valuation being rejected by your Help to Buy agent and another, acceptable, valuation being commissioned (again, at your own expense!).

Once you have received your valuation, the results are sent, together with any other relevant paperwork and the offer that you wish to accept, to your Help to Buy agent, who will then establish the total repayment amount. An administrative fee of £200 is also charged at this time. It is important to bear in mind that any valuation figure that you receive is only valid for three months, so it’s important to move quickly. If the loan has not been redeemed within that period, then you will either have to pay for another valuation or apply for an extension. Any changes in the valuation will be then reflected in the redemption amount.

Add to this the other costs of selling a home – which you can get a full picture of in our guide on What is the cost of selling your home

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What happens if my home bought with Help to Buy equity loan has fallen in value?

Because new build properties are only considered as ‘new’ for a very short period, their value can diminish over time.

However, with a Help to Buy equity loan, you are only committed to repaying whatever percentage of the loan you receive at market value when you sell your home. In other words, if the market value of your property falls below the original purchase price, then you will not be held liable for any shortfall in the loan providing that your market valuation is approved, that you have fulfilled all of your lender’s terms and that you are not in arrears over interest or management fee payments.

In some cases the Help to Buy Agency may ask you to provide evidence to show that you have not knowingly under-sold the property. Once you have received permission to sell your home at a lower market value, the final repayment figure is calculated by deducting your outstanding mortgage balance from the market value or sales price (according to which is highest).

I bought a flat in a block with dangerous cladding, what can I do?

If you live in a residential building that has cladding, or a combustible timber balcony, and is over 18m or six storeys, then it falls into the category of property that needs an EWS1. New guidance has led to EWS1 forms not being required for 92% of mortgage valuations on flats, according to the Building Societies Association. For more advice, see our guide to EWS1 forms.

If your building’s EWS1 form shows remedial work is required, then it could affect the valuation of your home If you have found an interested buyer, they may not be able to secure a mortgage until the cladding has been removed.

You will need to have a specialist valuation of your property for the by a member of the Royal Institution of Chartered Surveyors. The government’s agency – Target – must approve the valuation before it can go ahead.Homes England is currently advising leaseholders living in such blocks that they can only sell at the price as if the cladding issues does not exist and will therefore turn down any sale that is considered to be below market value.

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In addition, those leaseholders who can afford to pay back the loan themselves, have been banned from doing so as Homes England is not willing to sell at the current reduced value.

If you have been affected by this, please leave a comment below.

See our step-by-step guide to selling for more advice on selling your home

Related Reads

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  • The step by step guide to selling your home
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  • Why isn’t my house selling?
  • Find my best local estate agent now
  • How much should I pay the estate agent?
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FAQs

What happens when I sell my house with Help to Buy? ›

The Help to Buy equity loan must be repaid when you sell your home. You will pay the costs of selling.

Is it hard to sell a Help to Buy house? ›

Can I sell my Help to Buy home? Yes, the home will be in your name, which means you can sell it at any time. You'll have to pay back the equity loan when you sell your home or at the end of your mortgage period – whichever comes first.

How do you pay back Help to Buy when selling? ›

Unless you have repaid your loan in full through staircasing (the process whereby homeowners repay a loan in part via multiple payments), you will repay the Agency's equity loan simultaneously when you sell.

Is it easy to sell Help to Buy? ›

Selling a Help to Buy property is a little more complex than your typically home sale. That is because you will also need to pay back the equity loan used to buy the property in the first place.

What happens to home equity loan when you sell? ›

When you sell your house, the proceeds of the sale pay off your home equity loan and your primary mortgage. If your house is worth less than your loan or HELOC, you may need to wait for home value to rise before selling, or pay off the difference out of your own funds.

Do you get equity back when selling house? ›

When you sell, ideally you'd have enough equity to pay off your loan balance, cover closing costs and turn a profit. Upon closing, the buyer's funds first pay off your remaining loan balance and closing costs, then you are paid the rest.

Is it better to pay off Help to Buy before selling? ›

It's therefore wise to pay off the Help to Buy loan within the interest-free period to avoid these higher rates. Bear in mind that what you must pay back is a percentage of the property's current value, not what you paid for it.

What are the negatives of Help to Buy? ›

The disadvantages of Help to Buy – is it right for me?
  • The amount you must repay isn't fixed. ...
  • Equity loan interest rates can rise fast. ...
  • Not all lenders offer Help to Buy mortgages. ...
  • Remortgaging can be difficult. ...
  • Help to Buy is only available on new-build homes. ...
  • You may need permission to make alterations.
12 Aug 2022

How do I get out of Help to Buy? ›

You have three ways you can remortgage your Help to Buy home in order to pay off your equity loan.
  1. Use money from your property. If house prices have risen, you might be able to clear your loan using equity that has built up in your home. ...
  2. Remortgage to a higher LTV. ...
  3. Pay off the loan with savings.

Can I remortgage to pay off Help to Buy? ›

If you want to exit the Help to Buy scheme, you can remortgage your current property and increase the total amount you borrow to pay off the entire equity loan.

What happens with Help to Buy after 5 years? ›

The first five years of the Help to Buy equity loan is interest-free. After the interest-free years, you'll be charged 1.75% on the outstanding amount as interest. This fee will increase each year by RPI plus 1% You only repay the interest not the equity.

How much equity should I have in my home before selling? ›

How Much Equity Do You Need? To determine the amount of equity you need when selling your home, you need to know your reasons for selling. If you're looking to relocate, then you will need about 10% equity. If you're looking to upsize to a bigger home, you will need at least 15% minimum equity.

What will replace Help to Buy in 2023? ›

Why is Help to Buy: Equity Loan (2021-2023) ending? In October 2018 the government announced that the Help to Buy: Equity Loan (2021-2023) scheme would run from 1 April 2021 to 31 March 2023. There are no plans to extend or replace Help to Buy: Equity Loan.

Do you need a solicitor to pay off Help to Buy? ›

Do I need a solicitor? You will need solicitor to carry out the legal conveyancing to redeem the loan. Please remember to insert the name of your solicitor for your Loan Redemption Form.

Do you have to pay back Help to Buy? ›

The equity loan must be repaid after 25 years, or earlier if you sell your home. You must repay the same percentage of the proceeds of the sale as the initial equity loan. So, if you received an equity loan for 20% of the purchase price of your home, you must repay 20% of the proceeds of the future sale.

Can you sell your house with a home equity loan on it? ›

You can sell a home even if you've taken out a home equity loan (or home equity line of credit). In such cases, you can use the money you receive for the sale to repay the home equity loan, and you won't have to make any further payments.

Is it a good idea to take equity out of your house? ›

A home equity loan could be a good idea if you use the funds to make home improvements or consolidate debt with a lower interest rate. However, a home equity loan is a bad idea if it will overburden your finances or only serves to shift debt around.

Do you pay back home equity loan? ›

A home equity loan — sometimes called a second mortgage — is a loan that's secured by your home. You get the loan for a specific amount of money and it must be repaid over a set period of time. You typically repay the loan with equal monthly payments over a fixed term.

How long should I stay in a house before selling? ›

As a REALTOR® might tell you, in order to make up for closing costs, real estate agent fees, and mortgage interest, you should plan to stay in a property for at least 5 years before you sell your home.

How can I get equity out of my home without refinancing? ›

Home equity loans, HELOCs, and home equity investments are three ways you can take equity out of your home without refinancing.

What happens if your house is worth more than your mortgage? ›

While being upside down on your mortgage won't prevent you from selling your home, you will need to pay the difference between the sale price and the balance on your loan. So, if your home sells for $200,000 and you owe $225,000 on your loan, you'll need to pay the lender $25,000.

Is Help to Buy worth it 2022? ›

If used wisely, Help to Buy is worth a look if you're struggling to buy because high rents and the rising cost of living are making it hard to save a large enough deposit. It will mean you can get a cheaper mortgage over the next five years without having to pay extra monthly charges, bar the £1 monthly admin fee.

Is it better to pay off equity loan early? ›

If you borrowed at a low interest rate, it may be worth paying on your current payment plan and investing the money you would have used to pay off the loan faster. If your goal is to eliminate monthly payments, paying the loan off early may be more attractive than what you would earn in the market.

What will happen when Help to Buy ends? ›

When HtB does end, a combination of these private and intermediate products will help provide affordable routes onto London's housing ladder. Before HtB existed, a selection of developers or housebuilders offered equity loans or part-buy part-rent products.

Do people regret using Help to Buy? ›

12% of participants used the Government's Help to Buy scheme, but 51% expressed regret at their decision now. Just 4% used the Shared Ownership scheme, however 66% of those people claimed they regretted using it now.

How do I pay off my Help to Buy equity loan? ›

You can pay back part or all of your equity loan at any time. Repayments are based on your equity loan percentage and the market value of your home at the time you want to make a repayment. You'll need to get a market valuation report from a chartered surveyor when you make a repayment.

Is it worth to buy with Help to Buy? ›

By lowering the loan to value (LTV), Help to Buy enables you to access lenders more affordable mortgage rates. These rates typically kick in around 75% LTVs, which are more attractive for lenders due to lower risk.

How long does a Help to Buy valuation take? ›

How long does it take? We like to visit Help to Buy valuations within 2 working days and sometimes sooner dependent on location and availability. The report itself will take no more than 30 minutes and we send you a copy within 48 hours.

Can you pay off Help to Buy loan early? ›

If you have purchased your home using a Help to Buy Equity Loan you are able to repay this at any point after the date of completion of your purchase. You do not need to sell the property to repay the loan; you can repay it either by remortgaging the property or if you have other sufficient funds.

Can you use Help to Buy twice 2022? ›

Can you use the Help to Buy equity loan scheme twice? Yes, as long as your previous Help to Buy equity loan has been settled, you are permitted to apply to use the scheme again to fund a subsequent purchase.

Can you change Help to Buy to buy to let? ›

Changing to a buy to let mortgage

You cannot change your repayment mortgage to a buy to let mortgage until you've repaid your equity loan.

What is home equity release? ›

Equity release refers to a range of products letting you access the equity (cash) tied up in your home if you are older. You can take the money you release as a lump sum or, in several smaller amounts or as a combination of both.

Can you rent out a Help to Buy property after 5 years? ›

No. Help to Buy is designed to assist you to move on to or up the housing ladder. If you wish to sublet, you will first have to repay the Help to Buy equity loan assistance.

What is the interest rate on Help to Buy equity loan? ›

Your first interest payment will be 1.75% of the equity loan amount you borrowed. Your interest will go up each year in April by the Consumer Price Index (CPI), plus 2%. The amount of monthly interest you pay is worked out by multiplying: the Help to Buy: Equity Loan amount (purchase price x equity loan percentage).

What is Staircasing in Help to Buy? ›

You can buy more shares in your home after you become the owner. This is known as 'staircasing'. When you buy more shares, you'll pay less rent. The amount of rent you pay will be based on the landlord's share.

Why You Should sell Your house in 2022? ›

Fall 2022 and beyond could be a great time for sellers, or more of a market equilibrium may develop. Rather than trying to play the market, consider the cards you currently have in your hand: you know now is a good time to sell because competition is high and inventory is low.

What month is the best to sell a house? ›

Spring (March-May)

The spring months are often considered the best month to sell a house. In fact, across the country, the first two weeks of May are often the busiest and most lucrative time for sellers. The spring has warmer weather, longer days, and lush landscaping opportunities that boost curb appeal.

How can I get the equity out of my home without selling it? ›

A home equity line of credit, also known as a HELOC, is one of the best ways to access equity in your home without selling it. Instead of taking out a loan at a fixed amount, a HELOC opens a pool of money that you can utilize, but you don't have to take it all at once or use it all.

Do you have to pay back Help to Buy ISA? ›

You do not have to pay it back. You can use the scheme with an equity loan.

Is Help to Buy only for new builds? ›

Wherever you live, you won't be able to rent out any part of the property you buy. Is Help to Buy only for new-build properties? Help to Buy is only for new-build properties. Ask the property developer if the property you're interested in is eligible for help to Buy.

Is Right to Buy ending in England? ›

The scheme has been around for over 40 years, having been originally been introduced by Margaret Thatcher in the Housing Act 1980. The scheme has been abolished in Wales and Scotland. It's still running in Northern Ireland, though far fewer people will be eligible to participate as of 28 August 2022.

What happens to my house deeds when I pay off my mortgage? ›

When the mortgage is repaid you are entitled to have your Ownership Documents, or property Deeds returned to you. Your Mortgagee is not entitled to hold them any longer, and will almost always return them to you after receiving your final payment.

What is a final settlement figure on a mortgage? ›

A full and final settlement is when you and your lender agree on a figure to pay off the debt. The offer will be below the total value of the debt, meaning the lender writes off part of the debt and will not chase you for the money you didn't pay in the future.

What documents do you get when you pay off a mortgage? ›

Certificate of satisfaction.

Your local office of records (the county recorder, county clerk or another department depending on where you live) will record a certificate of satisfaction once you or your loan servicer provides official documentation of your loan being paid off.

Is it hard to sell a Help to Buy house? ›

Can I sell my Help to Buy home? Yes, the home will be in your name, which means you can sell it at any time. You'll have to pay back the equity loan when you sell your home or at the end of your mortgage period – whichever comes first.

What happens to home equity loan when you sell? ›

When you sell your house, the proceeds of the sale pay off your home equity loan and your primary mortgage. If your house is worth less than your loan or HELOC, you may need to wait for home value to rise before selling, or pay off the difference out of your own funds.

What happens to the equity in my house when I sell? ›

Home equity is the difference between the market value of your home and the amount you owe on your mortgage and other debts secured by the home. If you sell a home in which you have equity, you can keep the difference once closing costs are paid and use it for new housing, other expenses, or savings.

Is it better to pay off Help to Buy before selling? ›

It's therefore wise to pay off the Help to Buy loan within the interest-free period to avoid these higher rates. Bear in mind that what you must pay back is a percentage of the property's current value, not what you paid for it.

Do you have to pay back Help to Buy? ›

The equity loan must be repaid after 25 years, or earlier if you sell your home. You must repay the same percentage of the proceeds of the sale as the initial equity loan. So, if you received an equity loan for 20% of the purchase price of your home, you must repay 20% of the proceeds of the future sale.

What are the disadvantages of Help to Buy scheme? ›

The disadvantages of Help to Buy – is it right for me?
  • The amount you must repay isn't fixed. ...
  • Equity loan interest rates can rise fast. ...
  • Not all lenders offer Help to Buy mortgages. ...
  • Remortgaging can be difficult. ...
  • Help to Buy is only available on new-build homes. ...
  • You may need permission to make alterations.
12 Aug 2022

How do I get out of Help to Buy? ›

You have three ways you can remortgage your Help to Buy home in order to pay off your equity loan.
  1. Use money from your property. If house prices have risen, you might be able to clear your loan using equity that has built up in your home. ...
  2. Remortgage to a higher LTV. ...
  3. Pay off the loan with savings.

What happens after 5 years on Help to Buy? ›

After 5 years, there will be an interest fee of 1.75% of the amount of your loan at the time you took it out, which will rise each year after that by the increase in the Retail Price Index. Your Help to Buy agent can explain this in more detail.

Do you need a solicitor to pay off Help to Buy? ›

Do I need a solicitor? You will need solicitor to carry out the legal conveyancing to redeem the loan. Please remember to insert the name of your solicitor for your Loan Redemption Form.

Can I remortgage to pay off Help to Buy? ›

If you want to exit the Help to Buy scheme, you can remortgage your current property and increase the total amount you borrow to pay off the entire equity loan.

How much equity should I have in my home before selling? ›

How Much Equity Do You Need? To determine the amount of equity you need when selling your home, you need to know your reasons for selling. If you're looking to relocate, then you will need about 10% equity. If you're looking to upsize to a bigger home, you will need at least 15% minimum equity.

Is the equity loan worth it? ›

Home equity loans can help homeowners take advantage of their home's value to access cash easily and quickly. Borrowing against your home's equity could be worth it if you're confident you'll be able to make payments on time, and especially if you use the loan for improvements that increase your home's value.

How much do you pay back on Help to Buy after 5 years? ›

The first five years of the Help to Buy equity loan is interest-free. After the interest-free years, you'll be charged 1.75% on the outstanding amount as interest. This fee will increase each year by RPI plus 1% You only repay the interest not the equity.

Is Help to Buy worth it 2022? ›

If used wisely, Help to Buy is worth a look if you're struggling to buy because high rents and the rising cost of living are making it hard to save a large enough deposit. It will mean you can get a cheaper mortgage over the next five years without having to pay extra monthly charges, bar the £1 monthly admin fee.

Will there be a new Help to Buy scheme after 2023? ›

There are no current plans to extend or replace Help to Buy: Equity Loan. The government announced that the Help to Buy: Equity Loan scheme would run until 31 March 2023.

Which is better Help to Buy or shared ownership? ›

Help to Buy: Although you'll have an outstanding mortgage and government loan, you'll effectively own 100% of the property. Help to Buy properties are almost always freehold. Shared Ownership: You'll only own a portion, usually between 25% and 75%, unless you staircase up to 100%.

Do people regret using Help to Buy? ›

12% of participants used the Government's Help to Buy scheme, but 51% expressed regret at their decision now. Just 4% used the Shared Ownership scheme, however 66% of those people claimed they regretted using it now.

Can I remortgage with a Help to Buy equity loan? ›

Can I remortgage on Help to Buy? Once your initial Help to Buy mortgage deal ends (this will usually be a fixed rate for between two and five years), you can remortgage. However, if you don't find a new deal you'll be switched to the lender's Standard Variable Rate (SVR), which can prove expensive.

How soon can you pay off Help to Buy loan? ›

You can pay back part or all of your equity loan at any time. Repayments are based on your equity loan percentage and the market value of your home at the time you want to make a repayment. You'll need to get a market valuation report from a chartered surveyor when you make a repayment.

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