How do I repay a Help to Buy equity loan?

Full answer

The Help to Buy equity loan scheme closed to new applicants in 2023, but many homeowners still have live equity loans from properties bought while the scheme was running, and understanding the repayment mechanics matters for their financial planning. **How the loan amount works** The government loan was typically 20% of the property's value at purchase (40% in London), interest-free for the first five years -- crucially, the amount you repay is calculated as that SAME PERCENTAGE of your home's value at the time of repayment, not the original cash amount borrowed, meaning if your home has risen in value, you repay more cash than you originally received, and if it has fallen, you repay less. **Interest charges from year six** From the sixth year onward, interest is charged starting at 1.75% of the loan amount, then increasing each subsequent year by the Retail Prices Index (RPI) plus 2 percentage points -- this compounding increase can add up substantially over time if you do not repay or staircase down the loan. **Ways to repay** You can repay the equity loan in full when you sell the property, when you remortgage (if you choose to release funds to repay it), or via a partial repayment ("staircasing") of a minimum 10% of the property's current value at any time -- partial repayments reduce the outstanding percentage owed and the resulting interest charges going forward. **Getting a formal valuation** Before any repayment (partial or full, outside of a sale), you must obtain a RICS valuation of the property, which the government-appointed administrator uses to calculate the exact repayment amount based on the current percentage owed. **Worked example** Someone bought a £250,000 home with a 20% (£50,000) Help to Buy equity loan. Five years later, the home is worth £300,000. If they now repay the loan in full, they owe 20% of the CURRENT £300,000 value = £60,000, not the original £50,000 -- a £10,000 increase reflecting the property's appreciation. **Why repaying early can make sense** Once interest charges begin in year six, the cost of holding the loan increases each year, so many homeowners aim to repay or remortgage to clear the equity loan before or shortly after interest charges start, particularly if property values (and therefore the repayment amount) are expected to keep rising. **Practical tip** If your equity loan is approaching its fifth anniversary, get an early valuation and compare the cost of repaying now (interest-free) against waiting and potentially facing rising interest charges combined with a higher property valuation -- remortgaging to release funds specifically to clear the equity loan is a common and often sensible strategy.

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