In 2013, the UK government introduced a new Help to Buy scheme that supported the mission of first time buyers to purchase their first home. This scheme included an equity loan, which allowed buyers to purchase a property with only a 5% deposit, as the loan provided cover from 5% to 20% of the purchase price. Once the sale of the house was completed, the buyer was then provided with 5-years free payments on the equity loan.
So, what happens if you decide to sell your Help to Buy property within those first 5 years? If you took out a 20% equity loan and decided that you’re going to sell your Help to Buy property within 5 years, then you will need to pay back the Homes and Community Agency (HCA) 20% of the house value.
This is completed at the time you sell your home so that the HCA is repaid for the money they loaned to you. We can understand that this is a complex process, so to answer your questions we’ve put together this short guide to explain how to sell your help to buy property within the first 5 years.
Simply keep reading to learn more.
Can I sell my Help to Buy property within 5 years?
Yes, you have the freedom to sell your property within the first 5 years of ownership if you purchased your home using the Help to Buy scheme. The main reason why the first 5 years of ownership is interest free on your equity loan is to provide you with a chance to pay back as much of the loan as possible before interest accrues. If you decide to sell before you’ve paid back your loan, then you will be required to pay back the percentage value of the loan from the overall sales cost.
For example, if you paid a 5% deposit on your home, and had a 75% mortgage, then you would have borrowed a 20% equity loan to cover the remaining cost of purchasing the property. If you sold your house before paying back the full amount of the loan, then you will need to pay back 20% of the house value at the time that you sell. For a house that’s worth £180,000, this amount would be £36,000.
How does the Help to Buy scheme work?
The concept of the Help to Buy scheme was to allow first time buyers to jump onto the property ladder with a small 5% deposit. Typically, to purchase a property you will need a deposit of 10% or above. For a house that’s worth £450,000, which is the maximum amount you can purchase for using Help to Buy in London, the deposit would amount to £22,500, compared to a minimum 10% deposit which would be required without this scheme (£45,000).
With this help, you could then purchase a new build home, a home through shared ownership, or contribute towards the cost of building a new home.
The Help to Buy scheme closed to new applications on the 31st of October 2022, with it formally ending in the UK on the 21st of March 2023.
What do I have to pay back if I’m selling my Help to Buy property?
You may be confused about the different types of costs that you will need to pay if you’re considering selling your Help to Buy property. Your equity loan will be the main cost that will need to be repaid. For more information on how much you have to pay, or to access an online calculator, explore the HCA website.
What happens if my Help to Buy house is worth less than what I bought it for?
There are various internal and external factors that contribute towards your house decreasing in value from the time you purchased it. This could include rising interest rates, events within the local area, damage to the property, and more. So, in the instance where your house is now worth less than the price you bought it for, what happens to paying back your equity loan?
If you sell your house before paying back your equity loan, then you will pay back the percentage of the loan you borrowed at the house’s current market value. In other words, if you bought a property for £450,000 in London with a 20% equity loan from the Help to Buy scheme, and the price of the property fell to £420,000, then you would pay back 20% of the new valuation price, and not the price you bought the house for.
Who do I need to contact if I want to sell my Help to Buy home?
One of the most important factors to keep in mind when selling your property within 5 years, is that you will need your house survey and valuation to be completed by a RICS qualified surveyor. This is to ensure that valuation is accurate, and checks every detail required to provide the most thorough cost estimate.
Why choose Crest Surveyors?
At Crest Surveyors, all of our surveyors are members of the Royal Institution of Chartered Surveyors (RICS), providing RICS property valuations and property surveys . This means that not only do you receive a service second to none, but also receive the quickest and most cost-effective solutions for your survey and valuation needs.