The Daily Telegraph - Saturday - Money
Help to Buy scheme lets down customers trying to remortgage
More than five years on from the introduction of the Help to Buy scheme, homeowners who took out an “equity loan” from the Government still lack remortgage options. The loan scheme was launched in the spring of 2013 and has offered would-be homeowners the chance to get on the ladder with a deposit of as little as 5pc.
The appeal of the scheme is that the Government offers a loan worth 20pc of the property’s value, interest free for five years. The remaining 75pc is borrowed from a bank or building society in the traditional manner.
The first batch of Help to Buy borrowers are now often paying higher interest rates on their mortgage and must start to pay interest to the Government for the first time, albeit at a low rate of 1.75pc.
Usually homeowners would aim to remortgage to a lower rate, but Help to Buy borrowers have limited choice. This is because many lenders demand that the Government loan be repaid when their bank loan is remortgaged, which is likely to significantly increase the cost of borrowing as the amount borrowed to repay the Government will be added to the bank mortgage.
NatWest has become one of the few lenders to allow a “true” Help to Buy remortgage – one where the government loan remains in situ while the bank mortgage is switched to a cheaper rate. This has the benefit of keeping in place the relatively cheap government loan while allowing the remainder to move to a lower rate.
Ray Boulger of John Charcol, the mortgage broker, said: “About two dozen lenders offer Help to Buy for purchase, but only half offer a remortgage option where you retain the equity loan.” He said Barclays,
Few deals are available to borrowers who want to switch from their original loan, says Adam Williams
Halifax and Skipton Building Society were some of the other lenders to offer a true remortgage.
HSBC, Santander and Virgin Money did not offer this facility, he said. This is despite five years of repayments and growth in property values across much of the country giving borrowers much more equity in their home, something that would traditionally make them more attractive to lenders.
Mr Boulger said one reason for lenders’ apparent lack of interest in the Help to Buy remortgage market was the amount of paperwork they had to provide to Homes England, which operates the Help to Buy scheme. Homes England said it was working with the industry to encourage more lenders to offer Help to Buy remortgages.
“The main reason why lenders have chosen not to get involved in the remortgage market is the extra admin involved,” Mr Boulger said. He added that, because the loan from the Government was still cheap even when interest payments began, it was often not worth repaying the loan.
Separately, financial firm OneFamily this week estimated that 45,000 Help to Buy Isa users had had house purchases delayed since 2015 because the 25pc government top-up is not paid until the sale completes.