Help to Buy Mortgages: Complete 2024 Guide

Note: The Help to Buy equity loan scheme closed to new applications on October 31, 2022. However, thousands of homeowners still have Help to Buy loans requiring ongoing management. This guide covers everything you need to know.

Help to Buy: Quick Recap

The Original Scheme:

Your deposit: 5% of property value
Government equity loan: 20% (40% in London)
Your mortgage: 75% (55% in London)
Interest-free period: First 5 years
Interest starts: Year 6 at 1.75%, then RPI + 2% annually

Example (£300,000 Property):

You paid: £15,000 (5%)
Government loaned: £60,000 (20%)
You borrowed: £225,000 (75%)

Year 6: When Interest Starts

This is when many Help to Buy owners get a shock:

Interest Calculation:

Year 6 interest: 1.75% of equity loan value
Every year after: Previous rate + RPI + 2%

Real Example (£60,000 Equity Loan):

Year	Interest Rate	Annual Cost	Monthly Cost
1-5	0%	£0	£0
6	1.75%	£1,050	£88
7	4.5% (estimated)	£2,700	£225
8	7% (estimated)	£4,200	£350
9	9.5% (estimated)	£5,700	£475
10	12% (estimated)	£7,200	£600

Important: These costs are in ADDITION to your main mortgage payment.

Why Costs Escalate:

Compound effect of RPI increases
No capital repayment - loan amount stays same (or increases with property value)
RPI typically 3-5% per year - adds up quickly

Your Help to Buy Exit Options

Option 1: Full Repayment from Savings

Pros:

✓ No more monthly payments
✓ Own your home outright (with mortgage)
✓ Unlock full property equity

Cons:

✗ Requires significant cash
✗ You repay % of current value, not original loan
✗ If property increased 20%, you owe 20% more

Example:

Original loan: £60,000 (20% of £300,000)
Property now worth: £350,000
Repayment needed: £70,000 (20% of current value)
You owe £10,000 extra due to appreciation

Option 2: Partial Repayment

How It Works:

Repay minimum 10% of equity loan
Reduces monthly interest costs
Must repay in 10% increments

Example (£60,000 loan on £350,000 property):

Pay 10% of equity loan: £7,000 (10% of current £70,000 value)
Remaining loan: £63,000 (18% of property value)
Interest savings: About 10% reduction in monthly costs

When This Makes Sense:

You have some savings but not enough for full repayment
Interest costs becoming unaffordable
Planning to sell in 2-3 years (reduce accumulation)

Option 3: Remortgage to Repay

Most Popular Option:

Requirements:

Sufficient equity in property
Afford higher mortgage payment
Acceptable credit score
Stable income

Example Scenario:

Current Situation:

Property value: £350,000
Main mortgage: £200,000 (75% LTV becomes 57% LTV)
Help to Buy: £70,000 (20% of current value)
Your equity: £80,000 (23%)

Remortgage Option:

New mortgage: £270,000 (repays £200k main + £70k HTB)
New LTV: 77%
Result: Single mortgage, no HTB interest costs

Monthly Comparison:

Before: £1,200 mortgage + £400 HTB interest = £1,600
After: £1,450 single mortgage = £150/month saving

When This Works:

Property value increased significantly
You've been paying down main mortgage
Current equity position allows 75-90% LTV remortgage

Option 4: Sell and Move

Considerations:

Help to Buy Repayment:

Government gets same % of sale proceeds
Example: 20% equity loan = 20% of sale price

Selling at a Loss:

If property worth less than you paid, you owe less
Example: Bought at £300k (£60k HTB), sell for £270k, owe £54k
But you've also lost £30k in value

Selling at a Profit:

You benefit from 80% of appreciation
Government benefits from 20%
Example: Bought at £300k, sell for £360k, government gets £72k (£12k profit for them)

Remortgaging with Help to Buy

Early Years (Years 1-5):

Remortgaging Your Main Mortgage:

Can remortgage the 75% main mortgage
Help to Buy stays in place
Access better rates as fixed deals end

Requirements:

Help to Buy must stay in second charge position
Need lender that accepts Help to Buy
Existing equity usually fine (property appreciation helps)

Later Years (Years 6+):

Two Strategies:

A) Remortgage Main + Keep HTB:

Only works if HTB interest still affordable
Delays repayment decision
Might make sense if property prices dropping

B) Remortgage Main + Repay HTB:

Increase mortgage to repay Help to Buy
Single mortgage payment
No more compounding HTB interest

Which Lenders Accept Help to Buy?

Lenders Who Work with Help to Buy:

Major High Street:

Barclays
HSBC
Nationwide
NatWest
Santander
TSB

Building Societies:

Coventry
Yorkshire
Leeds

Specialist:

Accord (Yorkshire BS)
Platform (Co-op)

Lenders Who Generally DON'T:

Many smaller building societies
Some specialist lenders
Virgin Money (case-by-case)

Tax Implications of Help to Buy

Good News:

Help to Buy equity loan is NOT rental income
No capital gains tax when you repay
No income tax on the loan

But Watch Out:

If you rent out your HTB property, complications arise
Some lenders prohibit letting with HTB in place
May need to repay HTB before converting to BTL

Help to Buy: Future Predictions

What's Likely to Happen:

Short Term (2024-2026):

RPI expected to stabilize at 3-4%
HTB interest costs will continue rising for year 6+ owners
More owners will remortgage to exit HTB

Medium Term (2027-2030):

Government may offer refinancing options (speculation)
Property prices determine whether remortgage-exit viable
Those in negative equity may struggle

Long Term (2030+):

Government must be repaid eventually
Expect reminders and possibly payment demands
May allow conversion to traditional mortgage in some cases

Common Help to Buy Mistakes

Mistake 1: Ignoring Year 6 Interest Start

The Problem:

Many buyers forget year 6 interest begins
Suddenly facing £200-400/month extra costs
No money set aside for repayment

Solution:

Set reminders for year 4-5 to plan exit strategy
Start saving or arrange remortgage 6 months before year 6

Mistake 2: Thinking You Owe Fixed $ Amount

The Problem:

"I borrowed £60,000, so I owe £60,000"
Actually owe 20% of current value

Solution:

Check property valuation annually
Calculate actual repayment amount needed
Plan accordingly

Mistake 3: Leaving Equity Loan Forever

The Problem:

"Interest-free for 5 years, so I'll deal with it later"
Year 6+ interest compounds aggressively
Becomes very expensive to maintain long-term

Solution:

Treat year 5-6 as deadline for exit strategy
Either remortgage or sell before heavy interest hits

Mistake 4: Not Shopping Around for Remortgage

The Problem:

Staying with existing lender when remortgaging
Missing better rates from competitors
Overpaying by hundreds per month

Solution:

Use broker to access whole market
Compare rates from all HTB-accepting lenders
Factor in fees when calculating best deal

Help to Buy and Property Value Decreases

What if your property is now worth less?

Negative Equity Scenario:

Example:

Purchase price: £300,000 (£15k deposit, £60k HTB, £225k mortgage)
Current value: £270,000 (10% decrease)
Current mortgage: £210,000 (you paid down £15k)
HTB now: £54,000 (20% of current £270k)

Your Equity:

£270,000 value - £210,000 mortgage - £54,000 HTB = £6,000

Options:

Stay put - wait for prices to recover
Pay down more mortgage - improve equity position
Partial HTB repayment - if you have savings

You Cannot:

✗ Remortgage to repay HTB (insufficient equity)
✗ Sell without bringing cash to sale (shortfall situation)

Getting Expert Help

Help to Buy mortgages are complex and becoming more expensive. Professional advice is essential.

How We Help:

Assessment:

Calculate exact HTB repayment amount
Project interest costs if you keep HTB
Compare remortgage vs. repayment vs. selling

Lender Matching:

Access lenders accepting HTB
Find best rates for your situation
Navigate affordability with increased borrowing

Exit Strategy:

Plan optimal timing for HTB repayment
Coordinate main mortgage remortgage with HTB exit
Minimize costs throughout process

When to Speak to Us:

Year 4 of ownership - start planning year 6 strategy
Before year 6 - avoid interest starting
When struggling with HTB interest - explore options
Property value changed significantly - reassess position

Get your free Help to Buy mortgage review - we'll calculate your exact position and recommend best strategy.

Summary: Key Dates and Actions

Year 1-4:

☑ Enjoy interest-free period
☑ Pay down main mortgage
☑ Save extra for potential HTB repayment
☑ Monitor property value

Year 4-5:

☑ Get property revalued
☑ Calculate HTB repayment amount
☑ Explore remortgage options
☑ Decide exit strategy

Year 5-6:

☑ Execute exit strategy (remortgage or repay)
☑ Avoid year 6 interest if possible
☑ Lock in new mortgage rate

Year 6+:

☑ If still have HTB, minimize interest costs
☑ Make partial repayments if possible
☑ Plan full exit as soon as viable

Don't let Help to Buy interest costs spiral. Act before year 6 if at all possible.