How brokers can help clients with Help to Buy loans

The equity loan allows borrowers to purchase a home worth up to £600,000 in the UK, so it is likely to be the biggest financial commitment a client has ever made.

According to the latest figures from the Ministry of Housing, Communities and Local Government to the end of December 2017, the mean purchase price of a property bought under the scheme was £247,230, compared with a mean equity loan of £52,026.

Potential Help to Buy customers, and existing borrowers, will need the right assistance at all stages of the process, but particularly when it comes to deciding how to repay the loan.

Lindsay Judge, housing expert at The Resolution Foundation, explains: “There is somebody called a Help to Buy agent who is the point person who would have set up the loan for you in the first place.”

Those who are considering taking out a Help to Buy equity loan can find an agent in their area by going on helptobuy.gov.uk.

Their role, according to the website, is to “guide you through the options available and explain the eligibility and affordability criteria”.

It states: “They have the authority to give the go-ahead for you to purchase a home with help from the equity loan scheme.”

They are clearly the first port of call for many prospective Help to Buy customers.

Seeking out advice

But existing Help to Buy customers will need to seek advice about the options available to them as they prepare to start paying back the government loan.

The charts below from The Resolution Foundation shows the annual fees paid on the average Help to Buy equity loan made in 2013 in the UK excluding London, and then for London only, and how this increases up to 2023.

Source: The Resolution Foundation

Michael Taylor, group marketing manager for proposition development at Santander, says it is important that borrowers stay engaged with their post-sales Help to Buy agent throughout the time the equity loan is in place so that the first monthly repayment doesn’t come as a shock and there is a clear, single point of contact for borrowers to access information or raise queries.

There is another reason buyers who used the scheme to purchase a house will need to stay in contact.

"Borrowers should also remember to discuss any planned home improvements with their post-sales Help to Buy agent before proceeding, as permission is required for significant improvements, and any value created by those improvements isn’t reflected in the valuation at the point the customer repays the equity loan," Mr Taylor points out. 

"These are important things to remember as details like this can be forgotten over time, so information about the scheme must remain accessible."

Rob McCoy, senior product and business manager at TMA, thinks advisers and brokers will have begun to see an increase in enquiries about Help to Buy repayments in April this year “as early adopters of the scheme start getting notifications of their monthly interest repayment under the equity loan part of the scheme”.

Wave of interest

However, Ray Boulger, senior mortgage technical manager at John Charcol, predicts there may not be the deluge of enquiries that some advisers are expecting.

He explains: “Although the Help to Buy equity loan scheme was launched in April 2013, the chancellor gave so little notice of the launch that there were very few completions until the third quarter of 2013.

“Hence it is too early to expect many enquiries specifically about the start of interest being charged on the Help to Buy equity mortgage.”

But visiting the goverment-backed website myfirsthome.org.uk seems to suggest otherwise.

A message on its homepage on the 27 April states: “We are currently experiencing extremely high call volumes.”

Due to the timing, it is more than likely that these are queries from Help to Buy borrowers about what to do next.

Craig Hall, new build manager at Legal & General Mortgage Club, suggests: "Many brokers are already receiving enquiries from borrowers that are reaching the end of their product term and are looking at options to repay their equity loan. This is only set to increase as the scheme continues to grow."

So, what can brokers do now to be of the most assistance?

For some, a remortgage may be possible, while for others they may decide to look at other options available to them to manage their mortgage and other financial commitments.Rob McCoy

Mr McCoy says: “At TMA, our advice for these advisers is to speak with Help to Buy borrowers to assess their future plans and how they have changed, if at all, when they first took out the Help to Buy product. 

“For some, a remortgage may be possible, while for others they may decide to look at other options available to them to manage their mortgage and other financial commitments.”

Mr Hall adds: "Brokers have a great opportunity here to reconnect with their clients to assess if their needs and circumstances have changed, and whether there are other options which would suit them better."

Ms Judge acknowledges it is difficult for government and the adviser industry to know how much customers remember about the equity loan from when they took it out five years earlier.

Should they assume borrowers have the knowledge to understand the choices that lay before them?

“It’s really hard to know how savvy people are about them [Help to Buy equity loans] and it is also hard to know if they remember five years after they’ve signed the document what they’re going to have to pay,” she notes.

It will be up to advisers to help them work this out and then discuss their options.

Keeping options open

While it is still early days, Mr Taylor confirms: “Anecdotal evidence suggests the rate of external remortgaging with the equity loan in place is currently low, and that it’s more common that customers are either remortgaging and raising capital to repay the equity loan in full, or choosing to stay with their existing lender and discuss a new deal.”

He says what mortgage advisers will be telling Help to Buy clients to do will vary, depending on each customer’s situation and circumstance.

“Intermediaries will be looking at the best overall deal for their client so will take a whole of market approach, looking at all options including remortgaging, staying with their current lender, or restructuring the lending if repayment (or partial repayment) of the equity loan is possible,” Mr Taylor adds.

He points to the helptobuy.gov.uk website and the myfirsthome.org.uk website for official scheme information that borrowers “should familiarise themselves with before and after entering the scheme”.

Ms Judge observes it could be a niche market for some brokers and advisers to “zoom in on” and start specialising in.

eleanor.duncan@ft.com