“Rising house prices are a good thing because at the end of the day you’re making 80 per cent of the rising house price. But the government has a bit of a charge over some of that because it’s an equity loan and not a mortgage.”
She reiterates: “It’s a percentage of the loan and not a fixed amount against the value.
“You can never be in negative equity with an equity loan, that’s the upside of it. If the house price goes down, then the value of the equity loan goes down.”
Mr Bradley agrees the equity loan “cushions borrowers from any falls” but it also means those same borrowers only see a proportion of any gains.
If neither of these options works for the borrower then it is possible to remortgage.
As Rob McCoy, senior product and business manager at TMA suggests, this is likely to be open to only a select few.
He reasons: “To do this, the borrower will need to meet revised affordability rules for their new deal and will need to find a lender who will allow capital raising or debt consolidation up to the higher loan-to-value (LTV) on the property.”
As Craig Hall, new build manager at Legal & General Mortgage Club, points out there are 20 lenders supporting Help to Buy purchases but only nine who, at the time this guide was published (May 2018) were offering remortgage products to Help to Buy equity loan borrowers.
However, he confirms more lenders are likely to enter this market this year.
"In the meantime, many lenders are focusing their efforts on product transfers and this has led to a significant improvement in offerings over the last 12 to 18 months," he observes.
“Of the lenders that support Help to Buy remortgaging, some allow for remortgaging with a raise of capital to partially repay the loan, while others allow a full repayment of the loan.”
David Blake, principal mortgage adviser at Which? Mortgage Advisers, agrees those who bought using the Help to Buy equity loan scheme are likely to have less choice when it comes to remortgaging.
He recommends: “I would encourage those in this position to plan ahead and seek independent mortgage advice to understand their options."
Whether a borrower can remortgage will depend on individual circumstances, he adds, including:
- Credit score
- Property value
How does remortgaging work in practice?
Mr Blake explains: “There are many lenders who are willing to receive remortgage applications if you are raising additional funds to pay off your equity loan.”
But he cautions: “For those that are looking to keep the equity loan in place, it becomes a very restrictive market as not many providers are willing to accept remortgage applications with the equity loan remaining.