If you’re thinking about repaying your Help to Buy equity loan, you’re not alone.
Many homeowners reach a point where they want to take full ownership of their property or prepare for a sale or remortgage.
Understanding when and how to redeem your equity loan can help you save money and make the process less stressful.
In this blog post, we will discuss what a Help to Buy equity loan is, why and when you should redeem it, the step-by-step process, common questions, and how Cooklaw Solicitors can help.
What is a Help to Buy equity loan?
Help to Buy equity loans were part of a government-backed scheme introduced in England to support first-time buyers in purchasing a new-build home. These loans are now closed to new applications.
The aim was to make homeownership more accessible by reducing the size of the deposit required and offering an interest-free loan for the first five years.
Under the scheme, eligible buyers could borrow up to 20% of the property’s value from the government (or 40% in London), in addition to a 5% deposit and a 75% mortgage from a commercial lender.
This equity loan gave many people the chance to get onto the property ladder, particularly in areas where saving for a large deposit is difficult.
Why and when should you redeem your equity loan?
There are several reasons why homeowners choose to redeem their equity loan, including changes in financial circumstances or life plans.
Common reasons for redeeming an equity loan:
- Selling a property
One of the most common reasons homeowners choose to redeem their equity loan is because they’re planning to sell and move on.
If you sell your property, the equity loan must be repaid as part of the process. This is because the government still owns a percentage of your home, and that share must be settled before the sale can proceed.
- Remortgaging
Many homeowners look to remortgage to secure a better interest rate and, at the same time, include the funds needed to repay their equity loan within the new mortgage.
This effectively removes the government’s stake in your property, allowing you to take full ownership.
It also gives you more control over your finances because you’ll only have one mortgage to manage, with no additional loan repayments or restrictions associated with the equity loan scheme.
- Avoiding interest charges
Following the initial five-year interest-free period of the Help to Buy equity loan, the government begins to charge interest on the borrowed funds.
This interest rate starts at 1.75% and rises each year in accordance with the Retail Price Index (RPI), plus an additional percentage.
Over time, these charges can add up significantly. Redeeming the loan before or shortly after this point can help you avoid these rising costs and may save you money in the long run.
- Increasing property value
It’s important to understand that the amount you pay back on an equity loan is a percentage of your home’s current market value, not the original loan amount.
This means that if the value of your property has increased since you purchased it, the amount you owe will rise accordingly.
As a result, if the value of your home has increased significantly, you may have to repay much more than you borrowed.
For this reason, many homeowners consider redeeming their equity loans sooner rather than later in order to avoid having to repay a larger sum.
When is the best time to redeem?
The best time to redeem your equity loan will be determined by your personal circumstances, but there are a few common scenarios in which it may make financial sense.
Many advisors recommend redeeming the loan before the five-year interest-free period ends, to avoid monthly interest payments.
It can also be beneficial to repay when your property value is stable, as this reduces the amount you’ll have to repay based on the loan’s percentage share.
If you’re in a good financial position, such as after receiving a raise, inheritance, or bonus, it may be a good time to reduce your long-term financial obligations by redeeming the loan early.
The step-by-step process of redeeming a Help to Buy equity loan
1. Get a property valuation
The first step in redeeming your Help to Buy equity loan is to obtain a property valuation. This must be completed by a RICS-certified surveyor.
Loan administrators are unlikely to accept valuations provided by estate agents or online calculators.
The valuation determines how much you’ll have to repay. For example, if your property was purchased with a 20% equity loan and is now worth £250,000, your repayment will be 20% of the new value, which is £50,000.
2. Instruct a solicitor
A solicitor, such as ourselves, is required to manage the legal aspects of the redemption process.
Solicitors are responsible for reviewing your RICS valuation to ensure it meets the scheme’s requirements, liaising with the loan administrator, managing all necessary paperwork, and submitting relevant documents on your behalf.
They will also handle any legal charges that need to be removed from your property title, as well as update the Land Registry to remove the government’s equity charge from your property.
3. Contact the loan administrator
You’ll need to inform the administrator that you’re planning to repay the loan.
This is done by completing a Loan Redemption Form and submitting it alongside a valid RICS valuation (dated within the last three months), your solicitor’s contact details, and the required administration fee, which is usually around £200.
Once the documents are received, the loan administrator will review them and issue a formal redemption figure, confirming the exact amount you must repay.
4. Arrange repayment
Once you know how much you need to repay, the next step is to arrange the funds.
This can be done in one of three main ways: by using personal savings, remortgaging your property to release equity (which is ideal if you plan to stay in your home), or by selling your home and using the sale proceeds to repay the loan.
If you’re thinking about remortgaging, speak with a professional mortgage adviser who can help you find the best deal for your circumstances.
5. Completion and final steps
When the funds are transferred and the loan is cleared, your solicitor will receive confirmation from the loan administrator.
They will then remove the Help to Buy charge from your property title and give you official confirmation that the loan has been fully repaid.
It is important to keep this confirmation safe because it serves as proof that you no longer owe anything under the Help to Buy scheme.
Common questions about redeeming a Help to Buy loan
Below, we’ve put together a Q&A covering common questions about redeeming a Help to Buy equity loan that haven’t already been addressed in this blog post.
What happens if my property value has decreased?
If your home’s value has decreased, you will still repay the same percentage of the loan but this will be in accordance with the current (lower) market value.
For example, if you borrowed 20% and your home is now worth £180,000 instead of £200,000, you’ll pay back 20% of that amount (£36,000).
Do I need to repay the full equity loan or can I do it in stages?
You can choose to repay your Help to Buy equity loan in instalments using a process known as staircasing.
This allows you to reduce the amount you owe in stages rather than repaying the full loan in one go. The minimum amount you can repay at a time is 10% of your home’s current market value, not the original purchase price.
Many homeowners prefer to progress gradually, particularly if they are unable to repay the entire loan at once.
It can be an effective way to reduce future interest charges while increasing your share of the property over time.
How long does the redemption process take?
The entire Help to Buy redemption process usually takes 6 to 8 weeks, but this can vary depending on how quickly you collect paperwork, complete your valuation, and how responsive the loan administrator is.
Delays may occur if your valuation expires (it is only valid for three months) or if any of your documents are missing or incomplete.
That’s why it’s important to stay organised and proactive throughout the process; it’ll make everything run more smoothly and reduce the likelihood of unnecessary setbacks.
Will I still need a solicitor if I’m not selling my home?
Yes, even if you are repaying your Help to Buy loan without selling your home, you will need to hire a solicitor.
Having a solicitor ensures that the process is completed correctly and that all legal obligations are met, which helps to avoid future issues.
How Cooklaw Solicitors can help
At Cooklaw Solicitors, we specialise in residential property matters, including Help to Buy equity loan redemptions.
Whether you intend to repay the loan in full, in stages, or as part of a sale or remortgage, our experienced conveyancing team is here to help you through every step.
We will handle the legal paperwork, communicate with the loan administrator, and ensure that all deadlines and requirements are met, allowing you to avoid delays and additional costs.
We understand that redeeming an equity loan can feel overwhelming, but with the right support, it doesn’t have to be.
Contact us today to learn more about how we can help.
