Five years have passed since the Government rolled out their Help to Buy Equity Loan scheme; another variety in the selection of financial helping hands available to assist those struggling to raise a mortgage deposit.
This particular option which is still available is designed for first-time buyers and existing homeowners who wish to buy a new-build property.
It works like this: the Government lends you up to 20% of your chosen property’s value. You put down a deposit of at least 5%, then get a mortgage to cover at least 75% of the property’s value.
With an Equity Loan, the money borrowed towards the deposit is interest-free for five years. But after that period you start to pay a fee of 1.75 per cent of the value of the loan, and this increases each year by RPI plus 1 per cent.
Now five years have passed since the scheme first launched, the first Equity Loan borrowers are due to make their first payments.
It’s estimated that many Help to Buy homeowners could be affected. In fact, in London alone it’s reported that around 2000 early-adopting homeowners will now owe an average of £652 over the year and £927 in London.
But it’s not just double trouble. Because like a lot a lot of bad news, this one could come in threes for borrowers who aren’t prepared.
In addition to having to find extra monthly cash to cover the Equity Loan payments, many will also be require to remortgage soon, as they chose to fix their mortgage for five years. This could mean a further financial burden for these borrowers, as an increase of just 1 percent would add £900 to the annual cost of the average UK mortgage.
That’s if they actually manage to remortgage. Because out of the 23 mortgage lenders who said they would provide a mortgage to Help to Buy Equity Loan buyers five years ago, only 10 have stayed the course. Which means those people who need to remortgage may need to switch to a different provide with different lending criteria, potentially leaving them high and dry.
All of which could be bad news for those who borrowed to the maximum when the scheme began, or whose circumstances have changed significantly.
What you can do
Not everyone who took out Help to Buy Equity Loans will struggle and this is still a good option if you make sure you are prepared for future increases to your payments which should be fully explained when you take out the mortgage.
But if you’re one of the 2000 borrowers whose payments will change this month, what steps can you take if your monthly mortgage bill suddenly rockets or you’re forced to remortgage?
The following steps from the Money Advice Service make sense for anyone who may be worried about meeting their payments, regardless of what type of mortgage they have.
• First off, contact your lender. They will normally be happy to help and discus options.
• Then check if you have insurance cover such as Accident, Sickness and Unemployment insurance. This may help if your income has fallen because of those reasons.
• Next step is budgeting to see if you can save money elsewhere that you could put towards your payments.
• If none of these steps help, see if a free debt advice service could help. Their trained advisers can offer impartial advice on getting out of a stressful situation.
• Finally, see if any Government benefits are available to help.
If you need to remortgage and are having problems, you can find specific remortgage advice here.