Following the credit crunch in 2013, the government wanted to give people back the confidence that they used to have when it came to buying a home. The market needed to get back onto its feet, so they introduced the Help to Buy equity loan scheme.
This scheme gave First Time Buyers that extra boost that they needed to get onto the property ladder and move into a newly built home.
To put it simply, the Help to Buy equity loan allows you to make up a 25% deposit. Once you have your 5% deposit (or more than 5%), the government will help you out and loan you the remainder to make up the 25%. Usually, people just take the full 20%.
This means that your mortgage is actually only 75%. However, it’s not that simple. People forget that this 20% is not a gift, it’s a loan, and you have you to pay it off within 5 years of taking out the Help to Buy Mortgage. If you don’t manage to pay it off within the deadline, you will start receiving interest on the remainder of the sum that is left.
A Mortgage Broker in Hull will help you manage your finances and may even be able to help reduce your monthly payments by finding areas where you can save money. This may be incredibly useful, especially if you are struggling to pay off the 20% loan that the government have given you.
As a Mortgage Broker in Hull, we always advise that you try to pay off this loan within the first 5 years. Remember, it’s a loan and not a gift, so the government still owns that percentage of the home, whereas if this is paid off, you will have 100% ownership of the home.
The interest rate of that 20% will start off at 1.75% and will keep on increasing by the year, so you have to be careful and monitor your finances.
When the interest repayments kick in, some customers may struggle to keep up with their payments. Most customers look to try and remortgage at some point.
Borrowers who are looking at remortgaging after taking out a Help to Buy Mortgage may struggle to get accepted by lenders. Lenders may know that you are remortgaging because you are struggling to pay off the equity loan.
There are some restrictions on the maximum loan to value when raising the capital to repay an equity loan. Some Lenders can consider going up to 95% though. The major advantage of repaying the equity loan in full is that any future increase in the value of the property will be 100% to the homeowner’s benefit and won’t be shared with the Government any longer.
If a lender cannot be found who will lend you the full amount to repay the Government loan when you come to remortgage then another option could be “staircasing”. This is when you gradually pay off the loan in instalments over a period of time, which will then reduce the percentage of your home the government owns. You can only staircase in multiples of 10%.
For more Help to Buy Mortgage Advice in Hull, get in touch with your Help to Buy Mortgage Advisor in Hull today. Receive a free Help to Buy mortgage consultation in Hull today.