Help to Buy Equity Loan: The Interest Cliff

If you bought your home with a Help to Buy equity loan, you may be approaching the point where it stops being free money and starts costing you real money every month. The scheme was a lifeline for many first-time buyers, but the repayment terms catch a lot of people off guard.

A Quick Recap: What Is the Help to Buy Equity Loan?

The Help to Buy equity loan scheme (which closed to new applicants in March 2023) worked like this:

• You put down a 5% deposit
• The government lent you 20% of the property price (40% in London) as an equity loan
• You got a 75% mortgage (55% in London) from a commercial lender
• The equity loan was interest-free for 5 years

The scheme helped hundreds of thousands of first-time buyers. But many are now discovering that "equity loan" is the key phrase — you borrowed a share of equity, not a fixed sum of money.

The Interest Cliff: Year 6 Onwards

For the first 5 years, you pay nothing on the equity loan beyond a £1 monthly management fee. Then in year 6, the charges begin:

• Year 6: 1.75% of the equity loan value per year
• Each subsequent year: the fee increases by the Consumer Price Index (CPI) plus 2%

Let's say you bought a £250,000 property with a 20% equity loan (£50,000):

• Year 6: 1.75% × £50,000 = £875 per year (about £73/month)
• Year 7 (assuming 4% CPI): £875 × 1.06 = £927.50 per year
• Year 8: continues to compound upward

These fees increase every year regardless of what happens to interest rates or property values. Over time, they become a significant additional monthly cost.

The Equity Problem

Here's what surprises many people: the amount you owe isn't fixed. You borrowed a percentage of the property value, not a specific sum. When you repay, you owe that percentage of the current market value.

If Your Property Has Gone Up in Value

Bought at £250,000 with a 20% equity loan. Property now worth £300,000.

• You owe 20% of £300,000 = £60,000 (not the original £50,000)

If Your Property Has Gone Down in Value

Bought at £250,000 with a 20% equity loan. Property now worth £220,000.

• You owe 20% of £220,000 = £44,000

The equity loan shares in both gains and losses. This is fair in principle, but it means that in areas with strong property price growth, your debt has actually been growing — silently — for years.

Your Repayment Options

Option 1: Repay in Full

You can repay the full equity loan at any time. You'll need to:

1. Get a property valuation from an RICS-registered surveyor (at your cost)
2. Pay back the loan percentage of the current market value
3. Pay an administration fee to the Help to Buy agent

Where does the money come from? Usually by remortgaging — increasing your main mortgage to cover the equity loan repayment.

Option 2: Partial Repayment (Staircasing)

You can make partial repayments, but each must be at least 10% of the current property value. So on a property now worth £300,000, the minimum partial repayment is £30,000. Each partial repayment requires a new valuation.

After repaying part of the loan, your monthly fees reduce proportionally.

Option 3: Repay When You Sell

If you sell the property, the equity loan is repaid from the sale proceeds. You receive the sale price minus your mortgage balance and minus the equity loan percentage.

Option 4: Keep Paying the Fees

You can simply continue paying the monthly fees. There's no fixed end date — the loan continues until you repay it or sell the property. But remember, the fees keep rising every year.

Remortgaging to Repay the Equity Loan

The most common strategy is to remortgage — essentially increasing your main mortgage to repay the equity loan in full.

What Lenders Consider

• Your current LTV after repaying the equity loan — will you need to borrow 85%, 90%, or more?
• Affordability — can you afford the higher mortgage payments?
• Credit history — any adverse credit will limit your options
• Property valuation — the lender will want their own valuation

The LTV Challenge

Using our example: property worth £300,000, 20% equity loan (now £60,000 to repay), and you still owe £150,000 on your main mortgage.

To repay the equity loan, you'd need a new mortgage of £210,000 on a £300,000 property = 70% LTV. That's manageable for most lenders.

But if property values haven't risen much, or you're in negative equity on the main mortgage, the numbers might not work.

Remortgaging with Bad Credit

If your credit has deteriorated since you bought the property, remortgaging becomes harder. You might not qualify for mainstream rates as a first-time buyer with bad credit, and specialist lenders will charge more. However, if your property has increased in value and your LTV is reasonable, there are usually options.

Lenders who commonly handle Help to Buy remortgages include:

• Halifax — experienced with Help to Buy refinancing
• Nationwide — competitive on remortgages
• NatWest — have dealt with many Help to Buy customers
• Kensington — for those with adverse credit
• Pepper Money — specialist lender for non-standard situations

What If You Can't Remortgage?

If you can't remortgage to repay the equity loan — perhaps because of bad credit, negative equity, or affordability issues — you have limited options:

1. Keep paying the fees while working on improving your credit or building equity
2. Make partial repayments if you have savings (minimum 10% of property value)
3. Sell the property and repay the loan from the proceeds
4. Wait — if your credit issues are temporary, your options may improve in 1-2 years

Common Questions

Can I rent out my Help to Buy property?

Generally no — Help to Buy properties have restrictions on letting. You typically need written permission, which is rarely granted and only in exceptional circumstances.

What happens to the equity loan if I die?

The equity loan becomes part of your estate. Your beneficiaries will either need to repay it or it will be settled when the property is sold.

Can I make home improvements?

Yes, but improvements that increase the property value also increase the amount you owe on the equity loan when you come to repay it.

What if I can't afford the fees and can't remortgage?

Contact your Help to Buy agent immediately. Ignoring the fees will result in interest being charged on top, and ultimately the government could take legal action. Your Help to Buy agent may be able to discuss your options, including hardship arrangements. If you're in financial difficulty, free debt advice from StepChange or Citizens Advice is also worth pursuing.

Worked Example: The Full Cost of Doing Nothing

Let's trace the real cost of keeping a Help to Buy equity loan over time, using a property bought at £300,000 in London with a 40% equity loan (£120,000):

Years 1-5: £1/month management fee = £60 total

Year 6: 1.75% × £120,000 = £2,100/year = £175/month

Year 7 (assuming CPI of 3%): £2,100 × 1.05 = £2,205/year = £184/month

Year 8: £2,205 × 1.05 = £2,315/year = £193/month

Year 10: approximately £213/month

Year 15: approximately £272/month

Year 20: approximately £347/month

Over 20 years of paying fees (years 6-25), you'd pay approximately £55,000-£60,000 in equity loan fees alone — on top of your main mortgage payments. And you'd still owe the equity loan at the end. This is why acting before year 6 is so important.

Step-by-Step: Remortgaging to Repay the Equity Loan

The process of remortgaging to repay your Help to Buy equity loan has specific steps that differ from a standard remortgage:

Step 1: Get a Property Valuation (8-12 weeks before you need to act)

• You must use an RICS-registered surveyor approved by the Help to Buy agent
• The valuation typically costs £150-£300 and is at your expense
• The valuation determines how much you owe — it's not optional and you can't use an estate agent's estimate
• The valuation is valid for 3 months, so time your application carefully

Step 2: Contact Your Help to Buy Agent

• In England, this is currently Homes England (previously managed by Target, now transitioning)
• Request a redemption figure based on the valuation
• They will confirm the exact amount you need to repay
• There is an administration fee (currently around £200) for processing the repayment

Step 3: Approach Lenders for Remortgage

• You need a new mortgage large enough to repay your existing mortgage AND the equity loan
• Make sure the lender knows this is a Help to Buy remortgage — some have specific processes for it
• The lender will conduct their own valuation (separate from the RICS valuation above)

Step 4: Instruct a Solicitor

• You need a solicitor to handle the legal work of removing the equity loan charge from your property
• This typically costs £300-£800 on top of standard remortgage legal fees
• Some remortgage deals include free legal work, but the Help to Buy element may still incur additional charges

Step 5: Complete the Remortgage

• Your new lender pays off your old mortgage and the equity loan simultaneously
• The Help to Buy charge is removed from the property title
• You're now free of the equity loan entirely

Total typical cost of the process: £700-£1,500 (valuation + admin fee + additional legal fees). This is a small price compared to years of escalating equity loan fees.

The Valuation Trap

One issue that catches homeowners off guard is the valuation process itself. You might believe your property is worth £320,000, but the RICS surveyor values it at £280,000. Since your equity loan repayment is based on this valuation, a lower valuation means you owe less — but it also means your LTV for the remortgage is higher.

Conversely, a higher-than-expected valuation means you owe more on the equity loan but have a better LTV. There's no "winning" scenario — it balances out — but you need to be prepared for the valuation to go either way.

Important: If you disagree with the valuation, you can challenge it, but the process is time-consuming and there's no guarantee of a different outcome. You can also wait and get a new valuation after 3 months.

Common Mistakes with Help to Buy Repayment

Waiting Too Long to Start

The remortgage process takes 8-12 weeks. If you start thinking about it in month 11 of year 5, you'll almost certainly pay at least a few months of equity loan fees while the remortgage completes. Start planning 6-12 months before year 6.

Not Checking Your Main Mortgage Terms

If your main mortgage is on a fixed rate with early repayment charges, remortgaging before the fix ends could cost thousands. Time your equity loan repayment to coincide with the end of your fixed rate period where possible.

Forgetting About the Minimum Partial Repayment

If you can't repay the full equity loan, you might consider a partial repayment. But the minimum is 10% of the current property value — not 10% of the equity loan. On a property worth £280,000, the minimum partial repayment is £28,000. Many homeowners don't have access to this amount, making partial repayment impractical.

Ignoring the Impact on Selling

If you plan to sell within a few years, you might decide it's not worth repaying the equity loan first. The loan will be repaid from the sale proceeds automatically. But remember — selling means the government takes its percentage of whatever the property sells for. If you've done significant improvements that have increased the value, the government benefits from those improvements too.

Not Budgeting for Fees

The RICS valuation, admin fees, and legal costs add up. Budget £1,000-£1,500 for the repayment process on top of any remortgage costs.

Questions to Ask Your Broker About Help to Buy Repayment

1. "What's my current LTV after repaying the equity loan?" — This determines which rates you can access.
2. "Should I wait for my fixed rate to end before remortgaging?" — Sometimes paying a few months of equity loan fees is cheaper than paying early repayment charges on your mortgage.
3. "Can I get a remortgage that covers the equity loan AND gives me a better rate?" — Often possible if your property has gained value.
4. "What if my credit has deteriorated since I bought?" — You still have options, but you may need a specialist lender.
5. "Is partial repayment worth it, or should I repay in full?" — The broker can model both scenarios and show you the total cost over time.
6. "Am I better off just paying the fees for a year or two while I save more?" — In some cases, paying short-term fees while building a larger equity position makes financial sense.

Help to Buy and Negative Equity

If property values have fallen and your home is worth less than you paid, you're in a difficult position. The equity loan still represents a percentage of the property value, so you owe less on the equity loan — but your main mortgage LTV may be too high to remortgage.

In this scenario, your options are limited:

• Keep paying the fees until values recover or you've paid down enough of your main mortgage
• Make overpayments on your main mortgage to reduce the balance and improve your LTV
• Contact your Help to Buy agent to discuss hardship options if you're struggling with the fees

The good news is that in negative equity, the equity loan fees are at least lower (because the loan amount is based on the lower property value). But it's cold comfort when you're trapped.

Act Before the Cliff

If you're within a year or two of the interest cliff, this is the time to plan. Speak to a mortgage broker about remortgaging options, get a sense of your property's current value, and understand what you'd owe. The earlier you act, the more options you have.

This is educational content, not financial advice. Your situation is unique — speak to a qualified mortgage broker before making any decisions.