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Comment: Guiding HTB clients coming to the end of an interest-free loan

When George Osborne announced the official launch of the Help to Buy scheme in 2013’s Spring Statement, he described it as “the biggest government intervention in the housing market since the Right to Buy scheme”.

For five years straight, young, aspiring homeowners looking to get a leg up on the property ladder have been benefitting hugely from the scheme. The latest findings from the Ministry of Housing, Communities & Local Government reveal that 218,371 property completions have been supported by the scheme since it first launched.

However, for those buyers who took out the equity loan in 2013, the five-year interest-free period will have now ended and similarly, for those who took out the equity loan a year later in 2014, borrowers will be nearing the end of the interest-free period this year. As a result, these customers – a total of 35,085 during 2013-2014 to be exact – will have realised that now is the time to consider their next financial steps.

Some may simply decide to make no changes to their current arrangements – we can call this ‘option 1’. However, the fact that interest on the equity loan will now need to start being repaid may have been a detail overlooked by many. This will mean an additional expenditure each month. What other options are available for this group of individuals? Especially those whose finances look a lot different to how they looked five years ago? Advisers, here are the additional choices you can present to your clients.

Option 2

If your client is keen to secure a better deal, one option could be for them to remortgage, perhaps with a different lender and start paying the interest on the equity loan, otherwise known as an HTB remortgage deal. As the ability to save seems at arm’s length for many young borrowers, this option may be an attractive route for those looking to gain back a bit of extra income each month.

Option 3

If this avenue does not appeal to some clients, they could instead remortgage the original loan and the equity loan into one new mortgage. This option will work particularly well if a client’s house has significantly increased in value over the last five years.

Option 4

For those customers who are in the fortunate position to repay some, or all, of the equity loan from their savings, advisers will need to make them aware of the restrictions. One of these includes that borrowers will be required to repay a minimum of 10 per cent of the property’s current value.

Essentially, it all depends on a client’s personal circumstances and financial situation. However, paying back any debts, if they can afford it, is always recommended as it saves them money in the long run. Similar to the previous option, borrowers could also consider remortgaging the original loan as a way of securing a better, more economical deal.

Option 5

Lastly, if remortgaging the original equity loan is not a viable option for your client, they could refinance the equity loan with a second charge loan and then go on to remortgage the original loan and second charge at a later date, such as when out of the ERC period.

Navigating uncertainty

What is clear is that there are many routes your HTB clients can take, and advisers will prove key in alerting them to all the other options available. A large proportion of these borrowers are likely to be uncertain as to how best navigate the next few years financially so it is up to advisers to step in and dissipate any fears they may have.

Financial advice is at a premium, and it is in an adviser’s best interest to get in contact with their HTB clients and ensure they are well-informed on all the options open to them. Uncertainty need not be a problem when advisers are on hand to take a holistic view of a client’s finances and guide them to the best possible solution for their needs.

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