I bought a new home with my daughter using Help to Buy four years ago.
My daughter wants her name removed from the mortgage loan, which we had under the Help to Buy scheme since 2014 and I want to clear the Help to Buy loan and get a new mortgage on the property with my husband.
I’m not sure how to do it.
Thousands of borrowers were given a step up onto the property ladder through Help to Buy
I wish to take the following steps:
1) I need to pay off the Help to Buy amount of 20 per cent and any appreciation of the property.
2) Remove my daughter’s name from the mortgage loan, at the same time, I wish to include my husband in the mortgage so that we could live in the house but pay my daughter’s share of the house at a future date.
Once we have paid off the monies under the Help to Buy, do we need to get permission from the Help to Buy scheme to add my husband’s name on the mortgage?
Or there is no need to involve the Help to Buy scheme as the loan has been paid off to them? SN
Sarah Davidson, of This is Money, replies: The Government’s Help to Buy equity loan scheme launched just over five years ago and, like you, thousands of homeowners who benefited are now realising that they need to start paying interest.
Help to Buy loans gave borrowers an interest-free amount for five years worth up to 20 per cent of the property’s value to put towards buying a new-build home, as long as they put down a 5 per cent deposit. This enable them to get a mortgage at 75 per cent loan-to-value and substantially cut their costs at the time of purchase.
In return, buyers agreed to pay interest on the Help to Buy loan when the five years was up and the Government’s stake in the home was a percentage and would thus rise in line with the property’s value.
The mortgage market has eased since then and house prices have risen. As a result, many have chosen to remortgage for a higher amount and use this money to repay their Help to Buy loan plus the Government’s share in any appreciation in value of the property.
Once you’ve repaid the loan and settled the additional share that you owe the Government, what you choose to do with the property and remaining mortgage is up to you.
However, you will need to consider a few things.
Firstly, if you need to raise a larger mortgage to repay the Help to Buy element, this will affect the loan-to-value of your new mortgage.
Most lenders restrict the mortgage amount to a maximum of 95 per cent of the overall value of the property, and the higher this LTV percentage, the higher the mortgage rate and monthly payments.
Secondly, you need to be sure that you can afford to repay the mortgage at the new rate.
If your daughter wants to come off the mortgage and your husband wishes to be put on the agreement, the lender will assess whether you can afford the new mortgage based on the joint income of you and your husband.
Your daughter’s income will no longer be relevant for the mortgage application.
Thirdly, if your daughter is happy for her equity to remain in the property but for her name to come off the mortgage, you should consider the amount that she is owed as her share and whether this could change if you wish to pay her out in the future.
Her share will be worth something at today’s property values.
If she is no longer contributing to the mortgage, it may be that you agree this amount it what she will be owed even if you transfer the money to her in 12 months.
But, you may agree that if the property rises in value again and is therefore worth more when you pay her back her share, that she is owed a bigger amount reflective of her percentage ownership. This ‘sharing equity’ would also be the case if the property was to lose value before you paid her back.
The safest way to manage these variables is to instruct a solicitor to draw up an ownership agreement that lays out exactly who owns what and how it should be valued.
This will also be needed if your daughter remains on the title deeds for the property.
The mortgage lender will also want to know whether your husband will be added to the deeds, and a solicitor will be best placed to advise you on this.
Once all of this is clarified, you can begin your search for a mortgage.
To help you understand next steps, we have asked David Hollingworth, of mortgage broker London & Country, to answer your questions.
Hollingworth: Once you repay the Help to Buy loan and appreciation, you can change the mortgage without asking their permission
He said: The first element to your question is the repayment of the Help to Buy equity loan.
If you were planning to keep the equity loan in place then there would be a need to seek consent from the Help to Buy administrator, which may or may not be given.
However, as you are planning to pay off the Help to Buy equity loan there would no longer be any involvement with the scheme’s administrator once it’s paid off.
The other restructuring could be tied in with that in order to achieve all your aims simultaneously.
Initially though you will need to understand the amount required to repay the Help to Buy loan as well as buy out any share belonging to your daughter.
The outstanding equity loan will be calculated by the Help to Buy administrator at the same percentage of the current property value as it was at the purchase price, 20 per cent in this case.
If the property has increased in value then the amount repayable will have increased. For example, if a property was originally purchased for £200,000 but is now worth the £225,000 the equity loan will now have increased from the original £40,000 to a current amount of £45,000.
There’s a clear process for establishing the amount repayable, which will require you to provide a valuation from a Royal Institution of Chartered Surveyors (RICS) certified surveyor.
That will come at a cost but will be necessary to initiate the process with the Help to Buy administrator.
If you have a good idea of the likely value then you can at least consider how the new mortgage may stack up to finance the repayment of the equity loan.
Availability of remortgage options is more limited where the equity loan will remain in place, either fully or partially, but many more lenders will be open to you drawing on equity in the property to repay the loan in its entirety.
Any new lender will want to be able to see that there is adequate equity in the property to support the buying out of the equity loan and/or your daughter.
There can be restrictions on the maximum percentage of the property value that they are prepared to lend.
They will also need to be sure that the mortgage will be affordable, so will need to assess the income and expenditure of you and your husband.
I’d suggest that it will also be necessary to seek legal advice for more information around the transfer of equity from your daughter when she is removed from the title and your husband is added as a joint owner of the property.
It’s important that all parties understand the consequences and the process plus the solicitor will be crucial in tying all the elements together for a smooth switch.