Real Estate

Help to Buy property owners need help to refinance

First-time buyers who used the government’s Help to Buy scheme to get on the property ladder are finding they need help to remortgage, as many big lenders refuse to offer them finance.

Under its flagship home ownership scheme launched in 2013, the government offered borrowers an equity loan of up to 20 per cent of the value of a new-build home, rising to 40 per cent in London.

These loans are interest free for the first five years. Following that period, borrowers must then pay interest of 1.75 per cent, increasing by RPI (retail price index) plus 1 per cent, on top of their normal mortgage repayments.

Only eight out of 25 lenders said they would offer remortgages to new customers who had yet to pay off their government loans, according to figures provided to the Financial Times by Homes England, the housing regulator.

This could leave buyers and “second steppers” who used the Help to Buy scheme facing reduced choice and higher fees when they come to remortgage.

Nationwide, NatWest, RBS and Santander are among the large lenders who do not offer a remortgaging option to new borrowers who have yet to repay the government’s equity loan.

Property experts said the process of remortgaging a Help to Buy property was more time-consuming and administratively complex because of the regulator’s rules about valuations and the amount of paperwork required.

As higher interest charges kick in, mortgage affordability could also be an issue. According to official statistics, by September last year, nearly 145,000 properties had been purchased using Help to Buy equity loans. About 38 per cent of those who used the scheme to buy a home had an income below £40,000.

Ray Boulger, a mortgage adviser, said the process for lenders was “significantly more complicated” on Help to Buy properties with an outstanding government equity loan.

“There are some difficult costs and administration in place for the new lender because of Homes England’s requirements,” said Mr Boulger. “If they could make those easier, we would see more lenders coming into the market. Lenders know the system is not as good as it could be.”

UK Finance, a trade body whose members include the largest mortgage lenders, said it was working with Homes England as part of a wider government review of the Help to Buy scheme, which included looking at the remortgaging process.

Homes England said it was working with UK Finance to increase the number of lenders offering remortgages for Help to Buy borrowers.

But mortgage advisers warn that Help to Buy customers face a limited choice when it comes to refinancing, leaving many locked out of the best deals on remortgages at a time when government fees are kicking in.

Those who have used the Help to Buy scheme in London are likely to have the highest loans and fees. Since 2016, they have been able to borrow up to 40 per cent of the value of their newly built homes.

In the second quarter of 2016, the average Help to Buy equity loan issued to buyers in the capital was £132,000.

Although these borrowers will not be required to pay fees until 2021, a loan of this size would equate to an annual charge of £2,325, rising to more than £2,500 by 2023 according to calculations by the Resolution Foundation.

The average amount borrowed by a Londoner in 2017 was higher still at £164,000, which would imply an annual fee of more than £3,000 in 2023.

“It’s bad for consumers because it’s a lack of choice,” said Lee Flavin, chief executive at mortgage advisers Rateswitch. “If you’re mortgaged under normal terms, there are no restrictions on who you can approach. You have access to the whole of the market.”

David Blake, adviser at Which? Mortgage Advisers, said that many people may not realise the terms they signed up to. “A lot of people have signed up to Help to Buy not thinking they would be restricted.”

This year, the Resolution Foundation, a think-tank, warned that the fees — which began falling due for the earliest borrowers in April this year — presented a “ticking time bomb” for many families, who would also need simultaneously to pay off mortgages with commercial lenders.


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