Help-to-remortgage needed

Help-to-buy homeowners face a limited choice when the time comes to repay.

Homeowners looking to remortgage a property they bought using a help-to-buy equity loan will struggle to find much choice, and could end up with an expensive product if they can't afford to pay off their government loan.

Help-to-buy equity loans were introduced in 2013, and allow prospective homeowners to get a taxpayer-backed loan of up to 20% of the value of a new-build property (40% in London). As long as you can put up your own 5% deposit, you can then use the government loan to gain access to more favourable mortgages. The government loan is interest free for the first five years, so all you have to do is pay a £12 annual fee.

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After this period is over, you pay a fee of 1.75% of the value of the loan. This percentage rises every year in line with the retail price index (RPI) plus 1% (and is obviously on top of your mortgage payments). So if RPI is 5%, then in year seven, your fee will rise to 1.86% (1.75% 1.06) of the value of the loan. If you want to repay the loan or part of it, then you have to repay a minimum of 10% of the house's value each time.

In an ideal situation, you would repay the equity loan as soon as possible. This way you avoid any extra fees, and any increase in the value of your house belongs to you, rather than partly to the government. But unless your circumstances have improved dramatically in the past few years, this isn't likely to be an option. Yet hanging onto the equity loan makes it much harder to remortgage.

Only eight out of 25 lenders said they would offer remortgages to new customers to pay off their help-to-buy loans, according to data given to the Financial Times by housing regulator Homes England. Those refusing to lend include big names such as NatWest, Nationwide and Santander.

This reluctance is partly due to the process being more complicated than for a standard remortgage. The housing regulator has specific requirements on valuations, and there is more paperwork involved. However, there is also likely to be some concern here that such buyers may struggle to afford repayments in the future, given that they will also be paying fees to the government.

The housing regulator is working to try to increase the range of products available, but that isn't much help if you want to remortgage now. Given that the idea behind help-to-buy loans was that people would be able to access cheaper mortgages (because of their larger, government-backed deposits), it's hardly ideal that they could now be forced onto expensive rates.

What to do if you need to remortgage

The most straightforward route would be to stick with your current provider (this is technically a product transfer rather than a remortgage). You could go on to its standard variable rate generally the most expensive option or switch to another of its mortgage loans; or you can shop around for the best deal (usually a good idea) from the limited supply of other lenders out there.

A few providers specifically target help-to-buy. In January, Skipton Building Society launched a range of fixed-rate products irritatingly nicknamed "hexit" mortgages for those who want to boost their borrowing to repay their equity loan. These products are available at up to 90% loan-to-value (LTV), and include up to £1,000 cashback. (But consider whether the rate on offer compares favourably with the rate on the equity loan.)