How to Sell a Help to Buy Property

When you’re ready to sell your Help to Buy property, you will also need to repay the equity loan that you have borrowed to buy the property in the first place. This means that there are a few extra hoops to get through during the selling process.

Selling a Help to Buy property is a little more complex than your typically home sale.

That is because you will also need to pay back the equity loan used to buy the property in the first place.

Help to Buy enables first-time buyers to purchase a new-build home of up to £600,000.

However, there are regional limits below this.

Homes purchased in some areas must not cost more than 1.5 times the average first time buyer property price in that area.

Help to Buy regional price caps

East Midlands£261,900
West Midlands£255,600
Yorkshire and the Humber£228,100
Help to Buy regional price caps (most current figures – April 2022)

Through the scheme, the government loans you up to 20% of the property value (rising to 40% in London).

You pay a 5% deposit and then you can take out a mortgage to cover the remaining 75%, or up to 55% in London.

The equity loan is provided by the Homes and Communities Agency, also known as the HCA. It is the HCA that must be repaid when you decide to sell your home.

Because this loan is an equity loan, the amount you owe will change in line with your property’s value – it is not a fixed amount.

So, for example say the value of your home has increased while you are living there, you will need to pay back more than what you initially borrowed to buy it.

Let’s break it down:

Say you bought your property for £200,000.

You paid a 5% deposit of £10,000.

Through the Help to Buy scheme, you borrowed 20% of the property’s value which is £40,000.

Then, you used a 75% mortgage to buy the rest which is £150,000.

While you lived in the property, the value increased by 10%, meaning the property is now worth £220,000.

The Help to Buy Loan you will need to repay will also increase by 10%. This means you will need to pay back £44,000.

Is it harder to sell a Help to Buy property?

It can be.

If you have already paid back the equity loan on your Help to Buy property, either by remortgaging or through your savings, then selling will be the exact same as if you were selling any other property.

In fact, if you own a Help to Buy property, the best thing you can do as a homeowner is pay back the equity loan within the first 5 years, while it remains interest-free.

However, if you have not paid back the equity loan, that is where things may get more complicated, as the HCA becomes involved in the selling process.

When you accept an offer on your home, you will need to notify the HCA via their agency called Target.

Target handles all of the admin side of the Help to Buy loans for the HCA.

You will also need to ensure that your property is valued by a chartered surveyor.

The surveyor must be a member of the Royal Institute of Chartered Surveyors (RICS), otherwise the valuation may be rejected by the HCA and you will need to pay for another survey.

At Boxall Brown & Jones, our fully qualified chartered surveyors can ensure that you receive the right advice and support every step of the way. Find out more about our valuations and surveys by clicking here.

Once the valuation is complete, the results are sent to Target, along with the offer you wish to accept and any other paperwork.

An admin fee of £200 will be charged at this time.

The valuation figure only lasts for 3 months, so you will need to act fast.

If the loan is not paid back within that time frame, you will need to either apply for an extension, or pay for another valuation.

The loan repayment is calculated as a percentage of either the agreed sale price or the current market value, whichever is the highest.

If you have repaid some of the loan already, this will be deducted from the final repayment.

Repaying a Help to Buy equity loan

A Help to Buy equity loan is interest-free for the first 5 years but after 10 years, the costs of the loan can spiral.

On a £200,000 property, where you paid a 10% deposit of £20,000 and borrowed 15% of the property’s value at £28,500, it is estimated that the interest on the loan could reach £31,770 after 25 years.

So, it is a good idea to pay this sooner rather than later if you can.

When you want to repay the loan, the rules state that you must repay it in increments of 10% of the property’s current value at a time.

This means that if you took out a 20% loan, you could repay 10% or 20% of the property’s current value in one go.

If you took out a 40% loan, you could repay 10%, 20%, 30% or 40% of the property’s value in one go.

Because the loan can only be repaid in 10% increments, if say you borrowed less than 20%, for example 15%, you could only repay the loan in full, as you would not be allowed to pay the remaining 5% as a separate payment.

Every time you want to pay back a part of the loan – or indeed if you want to pay off all of it, you will need to have a valuation completed by an RICS surveyor, which will cost you a fee.

Remortgaging to pay off your equity loan

 Something you may want to consider if you can manage the repayments is to remortgage to pay off your equity loan.

You will need to make sure that you are no longer tied to your mortgage term, otherwise this could mean that you face early redemption penalties.

It is better to wait until the mortgage term has expired in this case.

You must make sure that you can afford the monthly repayments if you do decide to do this.

You could consider extending your mortgage term to keep the payments lower if preferable.

What if my Help to Buy home has fallen in value?

Occasionally, Help to Buy properties go down in value.

If this happens, you only need to pay back the percentage of the loan at your home’s current market value when you sell it.

For example, if you bought your property for £200,000 and took out a Help to Buy loan of 20% to purchase the property at £40,000.

If you are property is now worth £180,000, you would need to repay 20% of that £180,000, which equates to £36,000.

That is if your market valuation is approved by Homes England.

Can you sell a Help to Buy home before 5 years?

Yes, you can the property is in your name, and it is yours to sell whenever you wish.

You will need to go through the processes as outlined above and repay the equity loan when you sell the home if you have not already paid it back.

When can I sell my Help to Buy home?

You can sell your Help to Buy property at any time.

However, you may want to wait until you have built up equity in your home by paying down the mortgage while the property value rises.

You may also want to wait until you have paid off the equity loan.

The loan is interest-free for the first 5 years, but then interest starts to kick in, meaning it is a good idea to pay it off as soon as you can.

Then, once it is time to sell, you can reference or move to your next home using the equity you have earned while living in your Help to Buy home.

What if my Help to Buy property has dangerous cladding?

Properties with dangerous cladding have seen their value drop dramatically in recent years.

Any interested buyers for your home will not be able to secure a mortgage on it until the cladding is removed from the property.

The HomeOwners Alliance states that this has put Help to Buy homeowners in a difficult position.

However, the government has now stated that developers and cladding companies will now have to foot the bill for unsafe cladding, and they have 2 months in which to come up with a plan.

The government is paying for cladding to be replaced on blocks of flats that are above 18m high.

Has the Help to Buy scheme been successful?

More than 340,000 households have used the Help to Buy scheme to purchase their home, many of them are first time buyers.

Government restrictions were introduced last year to limit the scheme to first time buyers only.

So, Help to Buy has undoubtedly helped thousands of people climb onto the property ladder who might otherwise have struggled to buy their first home.

If buyers have a plan for paying back their equity loan quickly, then they will be able to reap the rewards of their properties rising in value while their equity in their homes increases as they pay down their mortgage.

Just make sure you have a plan for paying back that equity loan as fast as possible.

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