Selling a Property With a Help to Buy Equity Loan
Although the Help to Buy Equity Loan is a helpful way to get onto the property ladder, homeowners who have used it are not always aware of the implications it has when it comes to selling their Help to Buy property.
There is a variety of Help to Buy schemes that can aid you in the buying process, with the Help to Buy Equity Loan being one. It has helped thousands of buyers get onto the property ladder in the UK but it’s also important to consider how it will affect your next steps. If you’ve already used this scheme to secure a property, it’s important to research what to do next before selling your Help to Buy home.
With the help of our professional property experts, Compare My Move has created a range of insightful selling articles to guide you through the process. In this article, we will discuss the process of selling a home you’ve purchased using a Help to Buy Equity loan and how it may differ from traditional selling.
- An Overview of the Help to Buy Equity Loan
- How Do You Sell Your Help to Buy Property?
- Can You Sell Your Home Before Paying Back the Equity Loan?
- Who Do You Contact When Selling a Help to Buy House?
- Other Costs Involved in Selling A Help to Buy Property
- Do You Need a Valuation?
- What Happens if Your Home Has Fallen in Value?
- Can You Move Your Mortgage?
- Can You Use the Help to Buy Equity Loan Again?
- Next Steps of Selling a House
An Overview of the Help to Buy Equity Loan
The Help to Buy Equity Loan is a government scheme available to first-time buyers looking to move in the UK. In the Budget 2018, it was announced that the Help to Buy: Equity Loan will come to an end on 31st March 2023. A new version of the scheme has since been introduced in April 2021 to ensure it is better targeted to those who most need support when purchasing a home. Some of the key changes included:
- The scheme is only available to first-time buyers.
- The scheme will introduce regional property price caps based on local markets. This will then set the maximum price of a new-build that can be bought with Help to Buy in each region.
To be eligible for the scheme, the property you’re purchasing must be a new-build and valued up to a certain amount. The price limits across each area of England greatly differ:
| Region of England | Property Price Limit |
|---|---|
| North East | £186,100 |
| North West | £224,400 |
| East | £407,400 |
| East Midlands | £261,900 |
| London | £600,000 |
| South East | £437,000 |
| South West | £349,000 |
| Yorkshire and The Humber | £228,100 |
| West Midlands | £255,600 |
The data presented above was taken from the gov.uk website, correct as of July 2021.
This scheme can greatly help first-time buyers, aiding them in purchasing a new-build home via an equity loan. This loan means the government will lend you up to 20% of the cost of your newly built home where you will then have to provide a 5% cash deposit and a 75% mortgage to cover the remaining costs. In London, the government can lend up to 40%.
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How Do You Sell Your Help to Buy Property?
You can sell your property at any time. However, when you do, you will have to repay the Help to Buy Equity Loan and mortgage on the completion of the sale. If you have chosen to repay the loan sooner, then you can continue to sell without further repayments.
This means that if you bought the property with a 5% deposit and 75% mortgage, you will have to repay 20% of the value of the property at the time of the sale.
You must appoint an independent valuer to assess the property and determine its worth through a Help to Buy; the 20% repayment goes to a Mortgage Administrator at the Homes England organisation, which presides over the scheme.
You should sell the property on the open market at the price agreed by the valuer as the property will not be released for any price less than the market valuation. If you sell the property for more than market value, then the amount due under the equity loan will be the percentage value of the sale price.
If you have any outstanding fees or interest, you must pay these before completing the sale. Again, the loan must be paid off before you complete the sale.
You will also need to complete the sale before being able to secure another Help to Buy Equity Loan should they still be available by that time.
If you’re unsure of any steps within the process, you should speak to your conveyancer who can provide further advice.
Can You Sell Your Home Before Paying Back the Equity Loan?
If you’re selling a Help to Buy property, then you must repay the loan at the time of selling. If you're not selling, then the equity loan must be repaid after 25 years.
When buying a property with Help to Buy, a so-called 'second charge' will be placed on the title at Land Registry, ensuring you can’t sell without repaying the loan percentage.
Who Do You Contact When Selling a Help to Buy House?
You will need to contact Target at My First Home for any further enquiries regarding the property purchased via a Help to Buy Equity Loan. You can either call 0345 848 0235, or you can email: Target.HCA@targetgroup.com
Target is the firm used for all administrative duties regarding Help to Buy. It will answer any questions and advise you on your next steps.
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Other Costs Involved in Selling A Help to Buy Property
If you’re selling your Help to Buy property without having first repaid your loan, then this will be deducted in full once the sale is complete. If you’ve previously made any redemption payments, then these will not be counted in the deduction.
The loan will be calculated as an agreed percentage of either the total sum of the sale price or the current market value, whichever is the highest. This will have to be obtained through a valuation, meaning you will be responsible for contacting a RICS qualified surveyor. If done incorrectly, the valuation could be rejected by your Help to Buy agent and you will have to pay for a second valuation also.
Your Help to Buy agent will calculate a total repayment amount once the valuation has been accepted. It’s important to know that there will likely be an administration fee included in this price, typically around £200.
Don't’ forget to add the average cost of selling a house to these extra expenses for a more accurate price.
Do You Need a Valuation?
When selling a Help to Buy property, it's often advised you arrange a specialist Help to Buy valuation to determine the property's value. The best time to organise this valuation would be just after receiving an offer from a potential buyer.
When selling a property purchased using a Help to Buy Equity Loan, don't forget to first pay off any outstanding fees or interest before completing the sale. Typically, you can arrange the valuation before or after this depending on your personal situation. Keep in mind that once the Help to Buy valuation is complete, you will not be allowed to sell the home for less than the value stated.
What Happens if Your Home Has Fallen in Value?
This is one of the potential downsides of Help To Buy equity loans, which people should consider carefully.
As new-build homes are only considered as ‘new’ for a short period of time - when they carry a price premium- their value can lower over time. When using a Help to Buy Equity Loan, you only need to repay the percentage of the loan at the market value when you sell.
This means that when you sell and the market value of the property is lower than the original price, you are not liable for any shortfall in the loan. You must appoint an independent valuer to assess the property and the current value for this new value to be approved.
If you have fulfilled all the terms set out by your lender, have an approved market valuation and do not have outstanding interest or management fees, you can continue with the sale and can pay less than the original amount owed if the value has indeed decreased. However, the Mortgage Administrator must approve the sale before this is certain.
The final repayment price will be calculated by deducting your outstanding mortgage from the market value or sale price, whichever is highest.
If you have not complied with the terms of the Help to Buy mortgage deed, you may be expected to repay the full equity loan.
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Can You Move Your Mortgage?
When you buy a Help to Buy home, you will likely have a mortgage deal specifically tailored to Help to Buy properties. If you’re selling your Help to Buy home to purchase a non-Help to Buy property, you will likely have to remortgage the new home. You'll need a conveyancing solicitor to help with the remortgage process.
Some Help to Buy mortgages may be portable, but many are not. This means you will have to repay your old mortgage and apply for a new mortgage deal rather than port the original rate from your old home.
Speak to your mortgage lender before committing to a new deal as some lenders will refund any early repayment charges, depending on their personal requirements.
Can You Use the Help to Buy Equity Loan Again?
In April 2021, the scheme became available to first-time buyers only. This means that once you’ve used a Help to Buy Equity Loan to purchase your first home, you will no longer be eligible to apply, meaning you can not use it for a second time.
Next Steps of Selling a House
This article is part of our selling a house guide. Next we will look at when you should accept an offer and what to consider before accepting. To learn more read considering and accepting an offer on my house.
