I should start off with a disclaimer I suppose.
I am not a financial or property advisor. I do not pretend to know this process inside out. This is purely my experience of the Help to Buy (HtB) redemption process, which many people will find themselves in over the next few years.
I’m not going to explain what Help to Buy is — There are plenty of articles going through that, and if you are reading….. hopefully you already know what it is — For those who don’t, read this — Help to Buy
I should also add that I’ve discussed the redemption process with 2 other couples, who both had a slightly different experience to me, which shows that this process can vary depending on your circumstances.
Overview
Before we dive into the intricacies of each stage, this is the general order in which you’ll want to do things.
- Check to make sure you will be approved of the extra borrowing.
- You’ll need to read the HtB “customer information pack” — View Information Pack — My First Home, and follow the steps relevant to you.
- Find a RICS certified valuer and book the valuation of your home.
- Find a solicitor (this is required for the redemption of the HtB).
- Send off the form (from step 2), which will need the valuation report and your solicitors details — This can take a bit of time to sort, so do it asap.
- Complete the mortgage application with your provider (now you know exactly how much you need to borrow).
- That’s pretty much it — The rest is in the hands of the mortgage underwriters — Your work is done, although I’ll explain a bit more about each point below.
Check to make sure you will be approved for the extra borrowing.
You can do this with the mortgage providers online calculator (the affordability check), or you can go full steam ahead and get the mortgage in principal (MiP) based on a rough idea of how much your house is worth.
Bear in mind you’ll need to borrow 20% of the current market value, so you should be able to make an educated guess.
However, having done the MiP route myself, there are pro’s and con’s to this. The biggest (only), downside is that the MiP only lasts for one week as far as credit checks go — After that, they could credit check you again, though it’s not a certainty.
The upside of going down the MiP route is that you will definitely know you can borrow the extra money to clear the HtB equity loan (providing your circumstances stay the same between the MiP and the actual mortgage application).
There is another massive element to this process here, which unfortunately, is a bit of a lottery.
How much is your house worth?
In my situation, when I initially called the mortgage provider to enquire about the extra borrowing, they gave me a figure that they had as a valuation for our house. They need to use this “estimate” throughout the mortgage application to give you an idea of the rates you’ll be offered.
It was quite a bit more than we’d thought, which is great in one way (our loan to value (LTV) ratio would have been lower, so we’d get better rates on the mortgage). But if the independent RICS valuer also valued it at that, we’d end up paying back more to the Government (because it’s 20% of the current market value).
To add even more confusion (and something they don’t tell you initially), once you go through the whole mortgage process, they may choose to re-value your house through an onsite inspection. This will be the mortgage companies own valuation, and does not impact the 20% you owe back.
In this instance, you want the valuation to come back as high as possible to lower your LTV.
You’ll need to read the HtB “customer information pack”.
This is pretty self explanatory, but the HtB people make it as hard as possible to get any answers.
If in doubt, call them.
Find a RICS certified valuer and book the valuation of your home.
I emailed multiple people to get a valuation, with the prices ranging from £250 cash to £400 ex VAT!
Needless to say I went with the cheapest option.
The only thing you’ll want to check is that they’ve done a HtB valuation before (so they know the process), and they are fully certified.
Remember — You want this valuation as low as possible as you’ll pay 20% of whatever the price is.
There are fairly strict guidelines as to how the valuer gets to their decision, so bribing them with cups of tea likely won’t help (although it can’t hurt).
Ultimately, they have to look at the sale price of 3 houses nearby, the state of the market/economy etc, and they come to their decision after that.
I’d guess there is a £30,000 swing, depending on how it’s worded — So a house worth £300,000 could easily be valued at anywhere between £270,000 and £330,000.
It would probably be worth explaining (in a subtle way), that you were redeeming the HtB equity loan at that time because the market was down…… wink wink.
Note — I should add that one of the couples I’ve spoken to about this, had to send their RICS independent valuation to their mortgage provider, and that was the value the provider used for their application.
In that instance, you likely want the valuation to be as high as possible — Whilst you’ll pay back more (because of the 20%), your LTV will be better, so your monthly payments will probably less.
Plus, depending on your circumstances, if they value your house too low, you may not be able to borrow the extra money at all!
Note 2 — In the interests of fairness, I should also add that the other couple I spoke to (all 3 of us are neighbours), didn’t need to have their house re valued, and the mortgage provider simply took the “desktop” valuation for their application.
In this instance, you already know what the mortgage provider is valuing your house at, so you really want to drive your RICS valuation as low as possible.
Find a solicitor (this is required for the redemption of the HtB).
Again, fairly self explanatory.
My criteria was:
- Price
- Knowledge of HtB redemption
- Communication
Although if truth be known, it was predominately price driven.
Fun fact…. I called 6 or 7 solicitors in my local area, and all came back with prices around the £500 mark.
I called a few “up North”, and found a price for £400.
You don’t need to go in and see them, but you’ll need to get the documents certified at the relevant place (bank, post office, solicitor etc).
Send off the form (from step 2), which will need the valuation report and your solicitors details — This can take a bit of time to sort, so do it asap.
The form actually tells you what to do here.
However, you’ll probably get an auto response saying “Unless you pay the £200 admin fee, this won’t get processed”.
If you can find details of how to pay this fee, you are a better person than I.
Once I called up, they told me I could pay over the phone or via bank transfer — Your call on that one.
Complete the mortgage application with your provider (now you know exactly how much you need to borrow).
Entering the final straight now.
It’s time to call your mortgage provider and go through the application.
If you can, it’s worth trying to time it so your existing mortgage expires at the same time. If you do them both together, and opt to choose a mortgage with a product fee (which, right now in 2019 is the best way to go about it), you’ll only pay the product fee once, and you can save £100’s over the course of the mortgage.
It’s not essential you do this, and ultimately, you’ll have had to have either:
- Taken a 5 year mortgage at the start
- Opted for a 2 year and then 3 year mortgage (or vice versa)
- Lose a year of the interest free period if you redeem the loan before the 5 years.
We did the latter of these. Having previously taken out a 2 year mortgage when we moved in 2015, and then another 2 years from 2017–2019, we made the decision to redeem our loan at that point.
A lot will come down to your own personal circumstances, but for us, I calculated that we would spend around £2,000 in interest on the extra borrowing we’d need (over the 2 years).
However, if the house price rose by £10,000 in that 5th year of our interest free period (which it could easily do), we’d have to pay back another £2,000 on to the mortgage anyway.
So couple that with the good valuation our mortgage provider had on our house already (although, this was before they’d performed their on site valuation), and the uncertainty around Brexit etc……. It felt like the right thing to do.
Our worst case scenario was to wait a year, find the house had lost value, or interest rates had crept up, and then not been able to redeem the equity loan in full.
Conclusion
We aren’t over the finish line yet, and if anything changes, I’ll come back and edit this with some extra bits.
Ultimately, for us, it all hinges on the mortgage providers valuation.
If they value it high, we are fine, and can take advantage of the best rates.
If they value it low, our monthly mortgage costs could increase by up to £200 due to the change in LTV.
I find this crazy….. The amount we are borrowing isn’t changing — It’s purely a made up value of our house which can have such an impact on our monthly outgoings.
Hopefully this has helped anyone looking to go through the same process we are, and if you asked me if I’d do it again….. The answer would be yes.
If you’ve got the money, then great — You don’t need to. And sure, there are some “fees” attached to all of this.
Fees to consider:
- HtB “admin” fee (what a joke) — £200
- Solicitor fees — £400 — £500
- RICS fees — £250 — £450
- Increase of house value — £??? (Our’s worked out to be £3,000 more than what we borrowed).
You can’t really think about the last one though. Ultimately, we wouldn’t have been able to get the house we wanted without HtB, and it’s given us a great “forever home” that we are very happy in.
Wrapping up.
If anyone has any questions, feel free to ask away.
Like I said at the start, I’m definitely no expert in this, but from talking to the so called “experts” in the relevant fields (solicitors, mortgage advisors etc), it really seems like there is no baseline for all of this, and no one fully understands the ins and outs.
Good luck!
