Repaying Your Help to Buy Equity Loan: What It Costs and How to Do It

If you bought a new build with a Help to Buy equity loan, there is a date in your paperwork that matters more than you might think. Five years after completion, the interest-free period ends and the government's loan starts costing you money every month.

At Drummonds Finance Group we deal with this constantly, because the scheme ran from 2013 until it closed to new applications in March 2023, which means most people still holding an equity loan are now past that five-year mark. This explains what you actually owe, what the options are, and how the repayment is worked out.

The important thing to understand up front is that what you repay is not what you borrowed.

How the equity loan works

Under the scheme you put down a 5% deposit, the government lent up to 20% of the purchase price, or up to 40% in London, and you took a mortgage for the rest.

The equity loan sits behind your mortgage as a second charge on the property. It is not a mortgage in the ordinary sense. You make no capital repayments towards it, and for the first five years you pay nothing on it at all beyond a £1 monthly management fee.

It has to be repaid in full when you sell, when your mortgage term ends, or after 25 years, whichever comes first.

You repay a share of today's value, not what you borrowed

This is the part that catches people out, and it is worth being clear about.

The loan was expressed as a percentage, and you repay that same percentage of what the property is worth now, or the sale price if that is higher. If the value has gone up, so has the debt.

Take someone who bought in 2018 for £250,000 with a 20% equity loan. They borrowed £50,000. If the property is worth £310,000 today, they owe 20% of £310,000, which is £62,000. The extra £12,000 is not interest and it is not a penalty. It is simply how the scheme was designed.

The flip side is that it works in reverse. If the property is worth less than you paid, you repay less than you borrowed.

When the interest starts and how quickly it grows

From year six you pay interest, charged at 1.75% of the amount you originally borrowed rather than the current value. On a £50,000 equity loan that is £875 a year, or roughly £73 a month.

That opening figure looks manageable, and it is the reason a lot of people decide to leave things as they are. The problem is what happens next. The rate increases every April. For loans taken out under the 2013 to 2021 scheme the increase is RPI plus 1%. For the later 2021 to 2023 scheme it is CPI plus 2%.

Because each rise is applied to the previous year's rate rather than the original one, it compounds. In an inflation environment like the current one, a rate that started at 1.75% keeps climbing year after year, and the payments never reduce the debt by a penny. It is a charge for keeping the loan, not a repayment of it.

Set against that, there is no early repayment charge on the equity loan itself. You can clear it whenever you are ready.

Your options

There are realistically four, and which one fits depends on your equity, your income and how long you plan to stay.

Repay it in full by remortgaging

This is what most people do. You take a larger mortgage on the property, use the additional borrowing to clear the equity loan, and end up owning 100% of your home with a single monthly payment.

Whether it works comes down to two things: whether the loan-to-value stacks up against the current valuation, and whether you can afford the larger mortgage. A property that has risen in value helps you on both counts, because the equity you have built reduces the proportion you need to borrow.

Worth knowing: a product transfer with your existing lender cannot do this, because a product transfer only changes your rate and cannot raise additional money. You need a full remortgage.

Repay part of it

You can make a partial repayment, sometimes called staircasing, in minimum tranches of 10% of the property's current market value. Each part repayment reduces the percentage the government holds, and it reduces your interest, because the charge is applied to a smaller balance.

This is useful if a full redemption is out of reach on affordability but you want to stop the interest growing on the whole amount.

Sell

The equity loan is settled out of the sale proceeds at the agreed percentage of the sale price. If you are trading up, our moving home page covers the mortgage side. Note that the equity loan cannot be transferred to a new property.

Leave it and keep paying

Sometimes this is the right answer, particularly if you expect to sell within a year or two, or if the affordability for a larger mortgage simply is not there yet. It is a legitimate choice rather than a failure. But it should be a decision you have made deliberately, with the rising interest and the rising redemption figure both in front of you, rather than something that happens by default.

What the process involves

To repay, in full or in part, you need a valuation from an independent RICS chartered surveyor. An estate agent's appraisal will not do. The valuation typically costs somewhere between £250 and £600 and is only valid for a limited period, so the timing has to line up with your remortgage.

You then apply to the scheme administrator, who confirms the redemption figure. Your solicitor handles the removal of the charge from the title.

The sequence matters. The valuation, the mortgage offer and the redemption figure all have expiry dates, and getting them out of step is the most common reason these cases drag.

What lenders look at

Not every lender handles equity loan redemptions, and among those that do, criteria vary in ways that decide whether your case works.

They will assess affordability on the full new loan amount, which is your existing mortgage plus the redemption figure. If that pushes beyond standard multiples, a lender that will consider five or six times salary may be the difference between clearing the loan and not.

Income structure matters too. If you are self-employed or your income includes bonus, commission or overtime, the figure different lenders arrive at from identical paperwork can vary by tens of thousands. Some also apply their own view on new build valuations, particularly on flats.

Frequently asked questions

How much do I owe on my Help to Buy equity loan?

Your original percentage applied to the current market value of your home, or the sale price if higher. If you borrowed 20% and the property is now worth £310,000, you owe £62,000 regardless of what you originally borrowed.

When does Help to Buy interest start?

In year six, counted from your completion date. It starts at 1.75% of the amount you originally borrowed and rises each April by RPI plus 1% for 2013 to 2021 loans, or CPI plus 2% for 2021 to 2023 loans.

Does paying the interest reduce what I owe?

No. The interest is a charge for holding the loan. It does not reduce the balance, and the balance itself moves with your property's value rather than with your payments.

Can I repay the equity loan without remortgaging?

Yes, if you have savings available. Most people do not have a lump sum of that size, which is why remortgaging to release the money is the usual route.

Is there a penalty for repaying early?

No early repayment charge applies to the equity loan. You will pay for the RICS valuation and your solicitor's costs, and your existing mortgage may have its own early repayment charge if you are still inside a fixed term, which is worth checking before you start.

Talking it through

We are a whole-of-market mortgage broker based in Oxfordshire, advising clients across the UK, and equity loan redemptions are a regular part of what we do.

If your interest-free period has ended, or is about to, it is worth knowing what the numbers look like before deciding whether to clear it. Get in touch and we will work it through with you.