What happens to your Help to Buy equity loan after 5 years?

If you’re approaching Help to Buy after 5 years, you don’t suddenly have to repay your equity loan in full. The main change is that the interest-free period ends and you start paying interest from the beginning of year six.

The Help to Buy interest rate starts at 1.75% in year six, and you continue paying the £1 monthly management fee. Importantly, neither of these payments reduces the equity loan itself.

Help to Buy: Equity Loan is now closed to new applicants in England, but existing homeowners still need to manage and eventually repay their loans. Below, we’ll explain what actually changes after five years, how the interest works and the options you can consider.

Do you have to repay Help to Buy after 5 years?

No. Reaching the end of the first five years doesn’t normally create an automatic deadline to repay your Help to Buy equity loan.

We tend to see people assume the fifth anniversary is a repayment deadline. In practice, it’s usually a change in cost, because this is when the interest-free period ends.

Under the current Help to Buy: Equity Loan rules for England, you normally have to repay the equity loan in full when you:

• reach the end of the equity-loan term, which is normally 25 years
• pay off your main repayment mortgage
• sell the property
• are required to repay it because of certain breaches of the scheme terms

You can also choose to make a part repayment or repay the equity loan in full earlier.

So, if you’re wondering what happens after 5 years with Help to Buy, the immediate change is usually the start of interest payments, not a demand for the whole equity loan.

What interest do you pay on Help to Buy after 5 years?

According to Homes England’s guidance on Help to Buy interest, interest becomes payable from the beginning of year six, starting at 1.75% per year.

If you haven’t previously made a part repayment, that rate is applied to the original amount of equity loan you borrowed. It isn’t calculated using your home’s current market value.

The annual interest is then divided into monthly payments. You’ll also continue paying the separate £1 monthly management fee.

Example of Help to Buy interest in year 6

Homes England uses the example of someone who originally bought a £200,000 home with a 20% equity loan:

• Original equity loan: £40,000
• Year-six interest rate: 1.75%
• Annual interest: £700
• Approximate monthly interest: £58.33
• Monthly management fee: £1

That means the Help to Buy loan interest after 5 years would be around £58.33 per month in this example, before adding the £1 management fee.

This is only an illustration. Your own payment depends on your equity-loan amount and whether you’ve already made any part repayments.

Period	Help to Buy interest	Management fee	Equity loan
Years 1 to 5	No interest	£1 per month	Equity percentage remains
Year 6	1.75%	£1 per month	Interest doesn’t repay the equity loan
Year 7 onwards	Can increase annually under the relevant scheme rules	£1 per month	Equity percentage remains until repayment

Does your Help to Buy interest rate increase every year?

Yes. After Help to Buy year 6, the interest rate can increase each April.

Homes England uses different annual increase formulas depending on which version of the English Help to Buy: Equity Loan scheme you used.

Help to Buy: Equity Loan 2013 to 2021

For the earlier 2013 to 2021 scheme, the interest rate is increased each year using Retail Price Index (RPI) plus 1% under the scheme’s formula.

Help to Buy: Equity Loan 2021 to 2023

For the later 2021 to 2023 scheme, the rate is increased using Consumer Price Index (CPI) plus 2%.

These are annual increases to the existing interest rate rather than percentage points simply being added to it.

This means there isn’t one universal Help to Buy year 7 rate. It depends on which scheme applies to you and the relevant inflation figure used for that year’s calculation.

Homes England normally tells borrowers about their updated interest rate before the change is applied in April.

Does the interest reduce your Help to Buy loan?

No.

This is one of the most important things we’d want someone to understand when reviewing Help to Buy after 5 years.

Your Help to Buy interest is a charge for having the equity loan. The £1 monthly management fee is also a charge. Neither payment repays the equity loan itself.

That’s different from the capital element of a normal repayment mortgage payment.

For example, if your Help to Buy equity loan represents 20% of your property’s value and you simply continue paying the required interest and fees, that 20% equity share doesn’t gradually fall because you’ve paid interest.

If you make a formal part repayment, however, the outstanding equity percentage reduces. Your future Help to Buy interest payments will then also reduce because the amount on which interest is calculated becomes smaller.

Can the amount you owe Help to Buy still increase?

The important distinction is between interest and the Help to Buy redemption amount.

Your Help to Buy interest is calculated using the monetary equity-loan amount. Before any part repayment, that’s based on the amount originally advanced to you.

The amount needed to repay the equity loan is different. It is based on the percentage of your home that remains subject to the equity loan and the property’s relevant market value when you repay it.

For example:

• Original purchase price: £200,000
• Help to Buy equity loan: 20%
• Original equity loan: £40,000
• Property value when repaying: £250,000
• Approximate full repayment: £50,000

If the property were worth less instead, the percentage-based repayment amount could also be lower.

So paying Help to Buy interest doesn’t freeze the amount you’ll eventually repay at the original cash amount.

When you formally repay the loan, Homes England requires a qualifying RICS market valuation to establish the property’s current value.

What are your options after the first 5 years?

There’s no single answer that’s appropriate for every homeowner. Broadly, you can continue with the equity loan, make a part repayment or repay it in full.

Keep the Help to Buy equity loan

You can continue with your existing Help to Buy arrangement, subject to its terms.

You’ll continue paying:

• the applicable Help to Buy equity loan interest
• the £1 monthly management fee

The outstanding equity share remains in place until you make a repayment.

We wouldn’t assume that keeping the equity loan is automatically the wrong option simply because the interest-free period has ended. Its cost needs to be considered alongside your mortgage, circumstances and future plans.

Repay part of the equity loan

You may be able to make a part repayment.

Under Homes England’s Help to Buy remortgage and repayment process, a part repayment must normally be at least 10% of your home’s current market value, and you cannot leave less than 5% outstanding.

Making a part repayment reduces the equity percentage you still owe and can also reduce the amount on which your future Help to Buy interest is calculated.

Repay it in full

You may choose to pay off your Help to Buy equity loan completely using:

• your own savings or other available funds
• proceeds when selling the property
• additional mortgage borrowing through a remortgage

The right route depends on your circumstances and the costs involved.

If you’re considering additional mortgage borrowing, our remortgage calculator can help you estimate how changing the mortgage balance could affect your repayments. The figures are illustrative rather than an indication that a particular mortgage will be available.

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Can you remortgage after 5 years to pay off Help to Buy?

Potentially, yes.

A Help to Buy remortgage after 5 years can sometimes be used to increase your first-charge mortgage and use the extra borrowing to repay the equity loan.

That doesn’t mean the additional borrowing will automatically be available.

If someone wants to remortgage to pay off their Help to Buy equity loan, we’d usually want to establish the current mortgage balance, Help to Buy percentage, estimated property value, income and financial commitments before assuming a larger mortgage is realistic.

The resulting mortgage still has to meet the lender’s affordability assessment, loan-to-value limits, credit criteria and property requirements.

Lender rules also differ. Some lenders currently require the Help to Buy equity loan to be repaid completely when remortgaging to them, while others can consider certain part-repayment structures.

Before someone pays for the formal Help to Buy valuation, we’d normally want to sense-check whether the proposed borrowing appears affordable and whether the resulting LTV fits suitable lender criteria.

You can find more information about help with remortgaging and how lenders assess a new mortgage before starting the formal redemption process.

Is it cheaper to repay Help to Buy after 5 years?

There’s no universal answer.

We wouldn’t simply compare a 1.75% Help to Buy loan interest rate with a mortgage rate and assume whichever percentage is lower must be the cheaper option.

They’re structurally different types of borrowing.

When we’re reviewing Help to Buy after 5 years, we’d normally consider factors including:

• your current and future Help to Buy interest
• the £1 management fee
• the equity percentage you still owe
• your property’s current value
• the estimated Help to Buy repayment amount
• the amount of mortgage borrowing required
• the mortgage interest rate
• the remaining mortgage term
• mortgage product and remortgage fees
• legal and Help to Buy administration costs
• the RICS valuation cost
• any early repayment charge on your existing mortgage
• how long you expect to keep the property

A lower monthly payment doesn’t automatically mean lower overall borrowing costs.

For example, increasing your mortgage and extending its term could make the monthly payment look more manageable while also meaning that interest is charged over a longer period.

We tend to look at the mortgage and Help to Buy position together rather than comparing two headline interest rates on their own.

What would we check before deciding whether to repay Help to Buy?

If we were reviewing your Help to Buy equity loan after 5 years, we’d normally want to establish:

• which Help to Buy scheme you used
• the original equity-loan amount and percentage
• whether you’ve already made a part repayment
• your current Help to Buy interest rate
• your existing mortgage balance and rate
• when your current mortgage deal ends
• whether an early repayment charge applies
• your approximate property value
• your income and employment or self-employment position
• your regular credit commitments
• your credit history
• your remaining mortgage term
• your plans for the property

These figures give a much more useful picture than simply asking whether a 1.75% rate sounds cheap or expensive.

What if you cannot afford to repay Help to Buy yet?

Reaching year five doesn’t normally mean that you suddenly have to find the money to clear your entire equity loan.

You can generally continue with the equity loan subject to the scheme terms, while paying the applicable interest and £1 monthly management fee.

You can then review your position again later.

However, if you’re struggling to meet the Help to Buy interest or management-fee payments, Homes England’s current guidance says you should contact Help to Buy Customer Services as soon as possible rather than allowing unpaid amounts to build up.

Should you review your Help to Buy loan when year 5 ends?

The fifth anniversary can be a useful point to review your position because your costs are changing.

But the end of the interest-free period doesn’t, by itself, tell you whether you should keep, partially repay or fully repay your Help to Buy loan.

The main points to remember are:

• Year five isn’t normally an automatic repayment deadline
• Interest starts from year six
• The interest doesn’t reduce your equity loan
• Your property’s market value affects the eventual repayment amount
• Keeping, partially repaying and fully repaying the loan have different financial consequences
• Remortgaging may be one way to fund repayment if the borrowing meets affordability and lender criteria

If we were reviewing this with you, we’d compare your Help to Buy position with your current mortgage, property value, borrowing capacity and future plans before deciding whether changing anything makes sense.

Thinking about paying off Help to Buy?

If your Help to Buy interest-free period is ending, Monday Mortgages can help you review the numbers and understand whether keeping the equity loan, repaying some or all of it, or using a remortgage to repay Help to Buy could fit your circumstances.