Many people take out a Help to Buy equity loan to get on the property ladder sooner. It can be a useful way to buy your first home with a smaller deposit, but the repayment rules are strict.
If you put off repaying, the loan doesn’t just sit there quietly. It can become more expensive, and it may limit your future options with your home. Keep reading to understand what happens if you delay and how it might affect your property plans.
How The Loan Works And Why Repayment Matters
The Help to Buy scheme gave you up to 20% of the property’s value (40% in London) as an equity loan. Unlike a normal mortgage, this money is tied to the value of your home.
That means the amount you owe changes if your property increases or decreases in value. This is why Help to Buy loan repayment is such an important decision, because delaying repayment could mean paying back far more than you borrowed.
Interest Charges And The Cost Of Waiting
You don’t pay interest for the first five years, but from year six onwards charges begin. It starts at 1.75% and then rises every April by the Consumer Price Index plus 2%.
Even if that doesn’t sound like much, over time it builds up. The longer you wait, the more money goes towards servicing interest rather than clearing the loan itself. If property prices also rise during this period, your repayment figure could jump significantly.
Impact On Remortgaging And Selling
Delaying repayment can limit your choices when you want to remortgage. Many lenders see the equity loan as a second charge, so your options may be narrower. While you still have the help to buy loan, you can’t extend your mortgage term. So, if you’ve got 19 years left on your current mortgage, your new mortgage term can only be 19 years.
If you want to sell your home, the government will take their share of the new market value, not what you originally borrowed. This can be a shock if your home has gone up a lot in value and you’ve not set aside funds to cover it.
The Risk Of Compulsory Repayment
It’s not only about your decision to delay. There are circumstances where repayment is forced. If you remortgage without approval, extend your lease, or change the title deeds without informing the administrator, you may trigger an immediate repayment.
Even if you keep up with your mortgage, ignoring the rules on the equity loan could still create financial pressure.
Planning Ahead To Avoid Problems
If you’re not ready to repay the full balance, you may be able to make a partial repayment, known as staircasing. This reduces the share the government holds in your property, which can protect you from future price rises.
Another option is to plan your remortgage carefully so you’ve got funds ready when repayment becomes unavoidable. Speaking with a conveyancing expert ensures you understand the process and the costs at every stage.
Final Thoughts On Delaying Repayment
If you hold back from repaying your Help to Buy loan, you risk higher interest, less freedom with mortgages, and potentially paying back far more than expected. By planning early, considering partial repayments, and getting the right advice, you can take charge of your repayment rather than letting it catch you off guard.
