Selling a Home Purchased With Help to Buy
We all know that selling a property can be a stressful experience, and this can be even more true when selling a home purchased with Help to Buy. Although you’re free to sell your home at any time, there are a few additional considerations when it comes to Help to Buy properties, particularly with the equity loan aspect of the scheme. Here’s everything you need to know to help the process run smoothly.
The Help to Buy equity loan
The equity loan is a key part of the Help to Buy scheme, making it easier for people to save the deposit needed to buy a property. With an equity loan, buyers could borrow up to 20% of the property’s value interest-free for the first five years (rising to up to 40% in London). This means they could buy a home with a more achievable 5% deposit and get a mortgage for the remaining 75%.
Do I have to pay back my Help to Buy equity loan before I sell?
While you can sell a Help to Buy property anytime, the equity loan must be paid back when you sell - or after 25 years, whichever happens first. Because the loan is an equity loan – a percentage of the property’s value rather than a specific fixed amount – the amount you owe will change in line with your property’s value. So, if your property has increased in value in the time you’ve lived in it, you’ll have to pay back more than you borrowed. On the other hand, if the value of your home has declined, you’ll pay back less. This makes getting an accurate, independent Help to Buy valuation essential.
Is it harder to sell a Help to Buy property?
While selling a Help to Buy property could be more challenging, this isn’t necessarily the case. In fact, if you’ve already paid off your equity loan, the sale will be just like any other transaction. If you still owe this money, however, the process can get more complicated because the Homes and Communities Agency (HCA), which administers the Help to Buy scheme, will need to get involved.
Even in this situation, the selling process will begin the same as any other property, with you appointing an estate agent and seeking buyers on the open market. However, when you accept an offer, you’ll need to notify the HCA via their agency, Target. This can be done via email (Target.HCA@targetgroup.com) or by calling 0345 848 0235. You’ll need to tell Target the amount of the offer you’ve received and confirm that you’ve instructed a surveyor to carry out a valuation.
Target’s rules require everyone selling a Help to Buy home with an outstanding equity loan to have an independent valuation carried out by a RICS-qualified professional. Once the valuation has been completed, the results will be sent to Target, along with the offer you wish to accept and any necessary paperwork. Expect to pay an admin charge of £200 for this. Be aware that Target can reject a valuation, for example, if you don’t use a RICS-qualified surveyor or if reports are incomplete or incorrect.
Once Target has all the necessary information, the loan repayment will be calculated as a percentage of either the agreed sale price or the current market value, whichever is the highest. The amount you owe will be deducted at the time of sale.
Repaying a Help to Buy equity loan
You can repay your equity loan at any point, either in full or in part, a process known as staircasing. As the loan is interest-free for five years, it’s a good idea to try to pay it off within this period, as the costs could increase significantly after this if your home increases in value.
There are some rules around how you make repayments; most significantly, you must pay it back in increments of 10% of the property’s current value at a time. So, if you only took out a 15% loan, you would have to repay this in full as you’re not allowed to make a 10% payment followed by the final 5%, for example.
It’s also worth remembering that you’ll need to pay for a valuation each time you want to make a repayment. This will likely be in the region of £300-£800, depending on the property size.
What if my Help to Buy property has cladding?
When selling, you may require an EWS1 form or other confirmation that there is no cladding. If there is cladding this will pose difficulties - Target HCA will need to agree the surveyor who normally needs to be MRICS or FRICS and you will need clarity on if/when the remedial works are to be completed. If this is covered by funding schemes, there will be no costs to the leaseholder and once finished the property will be satisfactory (amongst other information). It can be very tricky to find a valuer to value a property with cladding, as Target HCA has very specific requirements to be able to sell.
The Novello Approach
As an independent team of RICS-qualified chartered surveyors, Novello is in the ideal position to help you navigate the Help to Buy scheme, whether you’re remortgaging, repaying your loan or looking to sell.
Our team of experienced valuers understand the intricacies of Help to Buy and will deliver an accurate, impartial assessment of your home’s current market value in a matter of days so that you can make informed financial decisions.
At Novello, we compile digital reports using the latest technology, enabling us to produce valuations efficiently and with pinpoint accuracy so you can be confident our impartial Help to Buy valuations are a high-value investment that meets all of the requirements set by Target.