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, 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.

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.