How to Sell a Home with a Help to Buy Equity Loan?

Lots of buyers are looking to enter the property ladder, but it’s not always a clear path. The Help to Buy equity loan has been used by many simply because it provides so much help to those who are looking to get started, but there’s one key problem. What happens when you go to sell your home? Can you even sell your home if you’ve taken out this type of loan? Are there additional costs involved if you bought with this kind of loan now that you’re ready to sell? This guide can help you better understand how to sell your home if you have a Help to Buy Equity loan.

What Are Help to Buy Equity Home Loans?

If you’re unfamiliar with this government scheme, the idea here is to help potential home buyers who simply cannot afford to enter the property market. To qualify, home buyers must be first time homeowners. There are also price caps involved. In the North East, for example, the maximum price of the property that is allowed under this program is £186,100. In the West Midlands, that maximum price goes up to £255,600. Additionally, the property has to be a new build. Help to Buy equity home loans have been part of the property landscape for some time, but it is ending in October of 2022.

It works like this. A potential borrower can take out the traditional 75% of the property price as a standard mortgage. The remaining 25% – the standard down payment – is helped through a home equity loan to buy a new house. Potential buyers come up with 5% of the purchase price as a down payment, then they can borrow 20% in the form of a home equity loan to buy a new house.

Repayment of this type of loan is fairly simple. It’s possible to repay it at any time. Many people make partial repayments, which are sometimes called “staircasing,” as this helps to reduce ongoing costs. The loan is only interest-free for five years, so repaying as much as possible within those five years is an absolute must. While you don’t have to repay it all at once, the minimum payment you can make is at least 10% of the property value, and it must have a valuation before you can make the payment. So, for example, imagine you took out a Help to Buy loan of £40,000. You cannot pay less than £4,000 in a staircasing payment.

It’s also possible to pay it off by remortgaging the property. While it will increase the size of a traditional mortgage, you actually benefit from any increase in value to your home. It does cost £115 in administrative fees, and Help to Buy administrators must approve any changes. Not all lenders will offer to work with you in this situation. In this situation, you may actually make some money from your Help to Buy equity loan. Home improvements and more are possible with those proceeds then. Help to Buy equity loan home improvements and other gains, though, depend on exactly how well you do in the remortgaging process, and that conversation begins with a lender.

It is possible to use a home equity loan to buy another property, but not this type of home equity loan. If you wish to use a home equity loan to buy another property, you’ll need to repay this one first. This program was never designed to offer people a home equity loan to buy an investment property. It was designed to help people get on the property ladder, so if you’re looking for a home equity loan to buy an investment property, you’ll need to shop around a bit more.

It also wasn’t designed to be a home equity loan to buy land. Instead, it was only made for existing new builds. While you can use this home equity loan to buy land that comes with the property, you can’t just buy land with it.

Selling a Home Yourself’ve Bought with a Help to Buy Equity Loan

Buyers who use a home buy equity loan are expected to repay it within 25 years of taking the loan out initially. If a buyer who used the program decides to sell before that loan is paid off, it must be paid off completely or it must be paid off with the sale of the home.

Help to Buy equity loans place a second charge on the property with the Land Registry in addition to the one placed by the mortgage company. As a result, the home sale can’t actually go through unless the HCA – the Homes and Community Agency that sponsors the program – is repaid. The good news, though, is that you don’t have to actually repay the loan until you sell the property. The HCA can simply take the proceeds out of what you make on the sale.

It’s fairly easy to understand these regulations, and it’s even easier to contact the HCA. You simply work through Target, which is the company that they use for administrative duties related to selling homes that have used a Help to Buy Equity loan.

There are no special rules or regulations around selling your home. Instead, you simply need to list it as you normally would. Once you get an offer, your property will be valued by a chartered surveyor. Then you let Target know about the offer you’ve gotten and they’ll ask for a copy of the survey report once it’s complete. From there, they typically contact you to let you know what to do next.

You will typically have to change your mortgage when you buy a new property. Most of the mortgages that work with Help to Buy cannot be transferred, but there are some situations where that is possible, so it’s best to talk with your lender as you prepare to sell your home.

If you should decide to sell without having made full repayment on the Help to Buy loan before you do so, the full amount is deducted at the time of the sale, and it’s on you to get a valuation from a RICS-qualified member. If you don’t, your Help to Buy agent may reject your valuation and require a new one. Once you get the valuation, you send it on to your Help to Buy agent, and they establish an overall repayment amount. You can expect to pay an administrative fee at this point, which is usually £200.

It’s also important to note that you need to move fairly quickly through this process if you’re selling your home. The valuation you submit is valid for a period of three months, and if you haven’t repaid your Help to Buy loan within that time, you have to apply for an extension or pay for an additional valuation.

New build properties often diminish in value of this time, which scares some home sellers that they may have to pay extra because the loan has fallen in value. Fortunately, Help to Buy understands the idea that market values change over time, so as you repay the loan, you’re really only repaying the percentage you might have gotten at market value. For example, if the market value falls below the original price you paid for the property, you won’t have to pay the shortfall once your Help to Buy agent has approved your property. Instead, you’ll simply pay the twenty percent. Keep in mind, however, you may have to prove that you have not undersold the property. Based on the valuation, you’ll get permission to sell your home for less than you originally paid, then deduct that percentage to pay for the cost of the loan.

The amount you repay, though, can also increase if your home’s value has increased. Imagine, for example, that you paid £200,000 for your home, and you bought it with a Help to Buy loan worth £40,000. Now that you’re ready to sell, the value of your home is £220,000. The home’s value has grown by 10 percent, so you will need to repay that additional 10%. Instead of repaying £40,000, you’ll repay £44,000. You won’t actually be able to use this home equity loan to buy a second home. Instead, you must repay it in full before  you buy a second home.

Help to Buy also understands safety concerns of their clients. If you live in a building that has proven dangerous cladding or a combustible timber balcony, that will be taken into account. You must have an EWS1 form to sell a property with cladding and/or a combustible timber balcony that is over 18 metres tall, and that could affect the valuation of the home if the EWS1 form shows it needs work. The RICS surveyor, then, will make a note of that so you can repay the value of the actual property.

Can I Use a Home Equity Loan to Buy Another House?

Many people ask “Can I use a home equity loan to buy another house”? The answer is a bit complex. In the strictest sense, the answer is no. Help to Buy was established to help buyers get into the property market. Those who are already homeowners cannot use the program. That said, a Help to Buy loan can help you buy another house because it gives you the money you need at the outset to help purchase your house. As you build equity in that house, or as the home’s value increases, you’re making money thanks to that loan, so once paid off, you can buy another house with the proceeds of the sale. If you’re asking yourself “Can you use a home equity loan to buy another house,” the short answer is that you can’t use this program to do so. Fortunately, there’s a slightly longer answer to the question of “Can you use a home equity loan to buy another house.” There are other kinds of home equity loans available throughout the UK that allow you to use a home equity loan to buy a second home, but this program doesn’t allow for it.

Taking the Necessary Steps to Sell Your Property

If you have a Help to Buy loan, you may wonder exactly how you begin the process of selling your home. It’s important to note that selling a home to purchase a different one or even move to a different area is a big decision. Most of the work in the process will be handled by your estate agent and your conveyancing solicitor, but there are several things you must do to make the completion day happen as soon as possible.

Begin by taking a hard look at why you want to sell. There are lots of reasons to consider selling your home. Perhaps your family is growing. In that case, you may first want to consider the cost of selling your home with the cost of adding an extension or simply converting other spaces in your home to additional living space. If, on the other hand, you’re relocating, you really don’t have an option but to sell your current home.

Once you’ve absolutely decided to sell, the next step is to decide when the right time to sell is. The answer to this question depends on two factors – first, your life circumstances and second, the market conditions. If the market is hot, any time is a good time to sell. If the market is a bit cooler, though, spring is generally the best time to sell your home.

When you’re ready to list your home, you’ll want to start by understanding exactly how much your home is worth. Typically you can get some sense of the value of your home online through sites like Zoopla. Once you understand basically what your home is worth, you can select an estate agent to help you market it. You’ll want to compare multiple estate agents. Look not only at the fees you’ll end up paying after they help you sell your home, but also their reviews. You may want to ask family, friends, and colleagues about their own experiences with estate agents to better understand the best choice for you. You will likely have to sign a contract with an estate agent, too. Be sure you understand the terms before you do so.

Your estate agent will recommend several things to you to help make your home more marketable. It may be simple steps you can take like cleaning up your kerb appeal or slightly more complex steps like repairing flooring sections or painting various interior rooms. All of their suggestions are just that – suggestions. While you certainly don’t have to take them, they can improve the overall selling price of your home.

As you prepare to list your home, speak to your mortgage company. You’ll want to check for any potential early repayment charges for which you’ll be responsible. You may also want to check to see whether you can port your mortgage. Remember, in Help to Buy loans, this isn’t always possible. Finally, if you intend to buy another property as you sell yours, talk to your mortgage company about how much you’ll be allowed to borrow on a new property.

The next step is to select a conveyancing solicitor. He or she will help ensure all of the legal documents related to the sale of your home are in order. Again, talk to family members, friends, or colleagues to get some recommendations. You’ll want to select someone who is regulated by the Solicitors Regulation Authority. You may also want to work to find someone who offers a no sale no fee option. If your home doesn’t sell, you won’t have to pay any fees.

The next step is to gather a number of documents so you can be prepared should an interested buyer appear. You’ll need your home’s Energy Performance Certificate (or EPC). These remain valid for ten years, so check to be sure yours isn’t expired. You’ll also need your title deeds, property information form, and any leasehold documents that apply to your property.

The next step is really the easy one. Maintain your property for any arranged showings. You want it to be neat, clean, and bright any time a showing is happening, so be sure you keep it in great shape.

If any offers are made on your property, your estate agent will let you know.  You don’t have to accept an offer, so if you get an offer with which you’re unhappy, feel free to reject it and wait for the next potential buyer to come along. Once you formally accept an offer, it’s time to get your Help to Buy agent involved with the process to make certain you can sell it for that amount of money.

If your Help to Buy agent agrees, you can formally accept the offer and move forward with conveyancing. After the required survey and any additional negotiations that need to take place between you and the buyer, the two of you can exchange contracts, then wait for completion day. Your completion day will be on a date the two of you selected. As you wait for completion day, you are still responsible for maintaining the home.

Getting a Help to Buy Equity Loan to Buy a Second Home

There are no programs currently that offer you a Help to Buy equity loan to buy a second home. After you’ve sold your first loan, you’ll be expected to come up with the proper amount for a down payment. For the first home, it’s a good choice to use a Help to Buy equity loan. Second home buyers, though, are often out of luck. A Help to Buy equity loan – second home buyers have recently learned – is only possible for those looking for a first-time mortgage.

Selling The House You Bought with the Help to Buy Program

It is possible to make a home buy equity loan work for you as you work to sell, but involving your Help to Buy agent very early on in the process is nothing short of a must.

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