When taking a Help to Buy mortgage, most clients are only focused on getting the keys to their new home. However, five years can go by quickly, and after this period, customers become eligible to pay interest payments on their Help to Buy Equity Loan.
It has been a turbulent few years, and our latest Adverse Credit Research identified 77% of consumers' income remained the same or reduced up to Q4 2021. However, nearly a third (32%) of people with adverse credit have increased their outstanding debt compared to 12 months prior. The challenge for many Help to Buy homeowners needing to remortgage is money management and the ability to save.
Plan A for most customers at this stage is often to increase their borrowing with a remortgage to pay off the entire Equity Loan balance. However, plan A is often not possible if the customer cannot demonstrate affordability on this increased borrowing. Remember, the Equity Loan to be repaid is based on the current property valuation when it is being repaid instead of the original loan amount.
So, many customers then consider remortgaging to pay off just some of the Equity Loan. Taking this approach requires a specialist Help to Buy remortgage as there will still be a part of the Help to Buy Equity loan remaining in the background.
For example, consider a customer who took out a mortgage of £150,000 and a Help to Buy Equity Loan of £40,000 on a property valued at £200,000 five years ago. House prices have risen over the last five years, so say the property is now valued at £240,000. This means the Equity Loan value to be repaid is £48,000, so the total borrowing would be £198,000. This may not be possible, but the customer may be able to pay off half of the Equity Loan, or 10% of the property, which would be £24,000, leaving the total borrowing at £174,000.
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