Welcome to our comprehensive guide on the UK’s influential Help to Buy scheme and the intricacies of the Help to Buy redemption process including booking a Help To Buy Valuation and finding a solicitor to sort your redemption. This scheme made homeownership accessible for many by providing government-backed equity loans, leading to a substantial influx of first-time homeowners. As participants move forward in their homeownership journey, understanding the redemption process is key. Whether through selling the property, remortgaging, or staircasing. Here, we delve into the Help to Buy scheme, explore the three main paths to Help to Buy redemption, and shed light on the pivotal role of Help to Buy valuations plus more.
Understanding the Help to Buy Scheme
The Help to Buy scheme, backed by the UK government, assisted first-time buyers and homeowners in achieving home ownership. Under this scheme, eligible buyers received an equity loan from the government of up to 20% (or up to 40% within London) of the property’s value. The only requirement from the participants was a minimum deposit of 5%, with the balance covered by a conventional mortgage. A key benefit of the Help to Buy scheme was a five-year interest-free period on the equity loan, creating an affordable entry point into homeownership. Notably, the scheme was primarily restricted to new build properties, encouraging investments in high-quality homes.
What is the Redemption Process?
The Help to Buy redemption process refers to the repayment of the Help to Buy Equity Loan you borrowed from the government. This is typically done when you’ve decided to sell your home, when you are remortgaging, or when you wish to make part repayments, also known as staircasing. We are going to explain in more detail the three different redemption processes below.
Help to Buy Redemption Through Selling Your Home: A Practical Route
This is the most common method homeowners use to redeem their Help to Buy equity loan. When you decide to sell your property, you can pay off the loan using the proceeds from the sale. It’s important to note that the loan is a percentage of the property’s value, not a fixed sum. Therefore, if your property value increases, so does the amount you owe.
To start the process, you’ll need to appoint a solicitor and inform your Help to Buy agent. An independent valuer will establish the current market value of your property. Once your home is sold, your solicitor will use the sale proceeds to repay the equity loan, and the rest is yours to keep. If there’s a shortfall, you’ll need to make up the difference. You can read in more detail about redemption through selling you can read our blog post here.
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Leveraging Remortgaging for Help-to-Buy Redemption: An Effective Strategy
Remortgaging is another viable option to repay your equity loan, especially if your home’s value has increased significantly since your original purchase or if you have sufficient equity. This entails swapping your current mortgage for a new one that also includes the value of your equity loan.
To do this, you need to follow a similar procedure as selling. An independent valuation is required, and your solicitor will oversee the legal aspects. However, instead of selling your home, you’ll switch to a new mortgage deal, using the funds to clear your equity loan. Be aware, you may need to consider additional fees like early repayment charges from your existing lender, valuation fees, and legal fees. We cover in more detail redemption through remortgaging in our blog here.
Staircase Payments: An Alternate Path to Help to Buy Redemption
This redemption method is also known as ‘staircasing,’ and it’s a great option if you cannot afford to repay the entire loan at once but want to start chipping away at it. It allows homeowners to make payments towards the equity loan in stages, reducing the overall amount owed and the interest that accrues after the initial interest-free period.
Staircasing can be done in minimum 10% increments of the current market value of your property. For instance, if your home is worth £200,000, each staircase payment would be £20,000, plus any associated fees. Similar to other methods, staircasing also requires an independent valuation of your home, and your solicitor will facilitate the process. If you would like to read in more detail about staircasing you can find everything you need to know in our blog post here.
The Help to Buy equity loan redemption process can seem daunting initially, but with a clear understanding of these three methods, you can choose the most suitable route for you. Whether it’s selling your home, remortgaging, or staircasing, each option has its pros and cons, and it’s important to consider these carefully.
Exploring Reasons for Opting for Help-to-Buy Redemption
Redemption of the Help-to-Buy loan is driven by various factors:
Avoiding Interest: Redeeming the Help to Buy equity loan before interest begins accruing can result in significant savings.
Property Ownership: Some homeowners may choose to redeem their equity loan to fully own their property, which can provide a sense of financial security and accomplishment.
Future Planning: If you plan on selling your property or remortgaging in the future, redeeming your Help-to-Buy loan can simplify the process.
Your Roadmap to Help to Buy Redemption: A Step-by-Step Guide
If you are embarking on your Help to Buy redemption journey start by exploring the Help to Buy portal, managed by Target HCA, providing all the forms and details necessary for your redemption process. Find the relevant information here.
1. Get a Property Valuation
Kick-start the process with finding a surveyor and getting a RICS valuation of your property.
- The individual conducting the valuation must hold a registered qualification from RICS.
- It’s essential that the valuer operates independently, separate from any estate agency.
- The valuation report should be official, presented on headed paper, signed by the RICS surveyor, and specifically addressed to Target HCA.
- The valuer is required to supply a minimum of three comparable properties, along with their respective sale prices.
2. Seek Legal Assistance
Involving a solicitor experienced in Help to Buy redemption is crucial. They will guide you through the redemption process. To find a great solicitor use homemove….
3. Initiate the Redemption
To officially begin the process, fill out the Loan Redemption Form provided on the Help to Buy portal. This form, along with your valuation report and an administration fee, should be submitted to Target HCA.
4. Receive and Review Redemption Package
Upon receipt of your form, fee, and valuation, Target HCA will send you a redemption package detailing your repayment figure and other necessary forms.
5. Set the Stage for Completion
Having received the redemption package, you can start preparing for completion. Remember, Target HCA requires a 15 working day notice for completion.
6. Legal Undertaking
Your solicitor will send a legal undertaking or a promise letter to Target HCA, proposing a completion date. Any changes in the date require a new undertaking.
7. Authority to Complete
Target HCA, upon receipt of the legal undertaking, will issue an Authority to Complete within 5 days, signalling their approval for completion on the proposed date.
8. Completion
Finally, on the completion day, your solicitor will transfer the necessary funds to Target HCA for loan redemption. Following verification of the funds, Target HCA will release the charge on your property, marking the successful completion of your Help to Buy redemption process.
The Importance of Help to Buy Valuation in Your Redemption Journey
The Help to Buy Valuation plays a pivotal role in your redemption journey, as it determines the amount you’ll need to repay to redeem your equity loan. Remember, under the Help to Buy scheme, the government loans you a percentage of your property’s value – not a fixed cash amount. Consequently, when you decide to repay – or ‘redeem’ – this loan, the repayment amount is based on the current value of your property, not the value when you first took out the loan.
This valuation is crucial for several reasons. First, it can affect the amount you need to borrow if you’re remortgaging or the profits you may earn if you’re selling your home to redeem the loan. Secondly, the valuation can impact your Loan-to-Value (LTV) ratio – a significant factor lenders consider when assessing your mortgage application.
Moreover, an accurate valuation ensures you pay a fair amount when repaying your equity loan, neither overpaying nor underpaying. Thus, a proper Help to Buy Valuation is an essential step in preparing for Help to Buy Redemption.
At Homemove, we take the complexity out of Help to Buy valuations, providing a service that is both straightforward and comprehensive. You can book your Help to Buy valuation with Homemove here. We have a network of RICS (Royal Institution of Chartered Surveyors) professionals that can offer their expertise to assist you at each step of the valuation process. We make the process as simple as possible and will arrange everything for you at a time and date that suits you. As well as, ensuring that all Help to Buy scheme requirements are met.
Help to Buy Solicitors
Solicitors play an instrumental role in the Help to Buy process. They are responsible for the legal side of things. They ensure that the process runs smoothly, and that you meet all your obligations.
Help to Buy solicitors should be well-versed in the equity loan scheme and its rules. They oversee the redemption process, handle legal paperwork, liaise with the Help to Buy agent, deal with your mortgage lender (in case of remortgaging), and ensure the equity loan is repaid correctly.
The key responsibilities of a Help to Buy solicitor include:
- Providing advice on the Help to Buy process and your legal obligations.
- Reviewing the contract of sale (in case you are selling your home).
- Coordinating with the mortgage lender to facilitate the redemption process (if remortgaging).
- Supervising the funds transfer to repay the equity loan.
Whether you are selling, remortgaging, or making staircase payments, it is essential to hire an experienced solicitor. To ensure that everything goes according to plan. When choosing a solicitor, ensure they have previous experience dealing with Help to Buy redemptions. To help prevent any hiccups along the way.
Homemove is your ally when it comes to finding trusted Help to Buy solicitors. We have top regulated conveyancing solicitors ready to help you. And our experts have a proven track record of delivering results. We also offer personalised conveyancing quotes that are tailored to your specific needs.
Implications of Not Repaying the Loan After Five Years
The implications of not starting to repay your Help to Buy equity loan after the first five years can have significant financial consequences.
Under the terms of the Help to Buy scheme, for the first five years, the equity loan is interest-free. Starting from the sixth year, homeowners must pay a loan fee. The fee equals 1.75% of the loan’s value. This fee increases each year by the Retail Prices Index (RPI) plus 1%.
The percentage might seem small initially. However, it’s applied to the loan value, which is a portion of your property’s original worth. The fee grows yearly by the RPI plus 1%. Over time, this could turn into a substantial financial obligation.
For example, if you took out an equity loan of £40,000, the loan fee in the sixth year would be £700 (1.75% of £40,000). This amount would increase each year in line with the RPI plus 1%, adding to your total costs. It’s important to note that these fees do not count towards repaying the equity loan itself. They are simply charges for using the loan.
After the five-year interest-free period, repayments must begin. If not, fees will escalate. This can greatly increase your monthly expenses. It may make long-term homeownership more costly. And lead to financial strain if not adequately planned for.
Furthermore, If you sell without repaying the equity loan, repayment increases. It’s based on current property value, not original loan value.
Therefore, it’s essential to have a plan for how you intend to handle the equity loan once the interest-free period concludes. Whether it’s through remortgaging, staircasing, or by including it in the sale of the property.
Costs associated with redemption
Valuation Fees:
The cost of a help to buy valuation can vary, but you should budget around £200 – £400. This valuation is valid for three months. If you don’t complete the redemption process within this period, you may need to pay for another valuation such as an extension or desktop valuation.
Solicitor’s Fees:
The legal process of repaying the equity loan involves appointing a solicitor. Your solicitor liaises with the Post Sales Help to Buy Agent and your mortgage lender. They arrange the removal of the second charge after repaying the equity loan. It’s wise to get multiple quotes as solicitors’ fees can vary. Expect to budget between £500 – £1,000.
Remortgaging Fees:
If you’re considering remortgaging to repay your Help to Buy loan, remember to account for potential remortgaging costs. These can include an arrangement fee for the new mortgage, valuation fees, and legal fees. Some mortgage lenders offer deals with no arrangement fees or offer to cover legal costs. So it’s worth shopping around to find the best deal. A great way to compare mortgage deals is on our website. We have a mortgage comparison tool to help you unlock the best deals for you. You can find all the information you need on our .
Early Repayment Charges:
Depending on your mortgage terms, you may have to pay an Early Repayment Charge if you remortgage before the end of your fixed-rate period. You can read more about it in our blog here.
Deeds Release Fee:
Target, the service managing Help to Buy loans, charges an administration fee. This fee covers the costs to remove the second charge on your property after paying the equity loan.”
Use Homemove
When navigating the Help to Buy scheme, Homemove can be an invaluable ally, providing a simplified, streamlined experience to make your journey towards homeownership as easy as possible. With our unique bundle offer, you can access both a RICS certified valuation and a trusted solicitor in one package, taking the hassle out of organising these crucial elements separately. Our team at Homemove handles all the legwork, coordinating with professionals to ensure your process is seamless and efficient. Choosing to use Homemove’s services not only saves you time but also gives you peace of mind, knowing you’re backed by an experienced team dedicated to helping you make the most of the Help to Buy scheme. With Homemove, you’re one step closer to making your homeownership dreams a reality.
