TMA Club has urged advisers to start proactively talking to those clients who are reaching the end of the government equity loan as part of the Help to Buy scheme.
With the initial five-year period nearing the end for those who took the loan out in late 2013 and early 2014, TMA is encouraging advisers to ensure they are aware of the various options in place for their clients.
Rob McCoy (pictured), senior product & business manager at TMA, said: “The Help to Buy scheme has undoubtedly been instrumental in helping many borrowers take their first steps onto the housing ladder.
“However, starting to repay the monthly interest on the equity loan after the initial five-year period is a detail often overlooked by many and we are increasingly beginning to hear that consumers don’t understand the implications of this.
“This is why we’re encouraging advisers to contact those clients who could be, or are soon to be, affected. This is particularly important for borrowers whose finances may look very different to how they did five years ago.”
“Uncertainty on next steps needn’t be a problem – there are plenty of avenues that borrowers can take to secure the best deal with this accumulation of interest. It’s in an adviser’s best interest to ensure their clients are well-advised to take the best possible route for them and their circumstances.”
Possible options for these clients include: making no changes to borrowers’ current payments and continuing to pay the current mortgage and interest, which will now start to be charged on the equity loan remortgage, the original loan and equity loan into one new mortgage.
This will work particularly well if a client’s house has significantly increased in value over the last five years.
Borrowers could remortgage their mortgage and start to repay the interest on the equity loan – also known as a Help to Buy remortgage deal.
Borrowers could repay some or all of the equity loan via savings – also known as ‘staircasing’.
Advisers must ensure that customers opting for this are aware of restrictions, such as only being able to repay a minimum of 10% of the property’s current value. Clients also have the option of remortgaging the original loan to secure a better deal.
If remortgaging the original loan isn’t an initial option, customers can refinance the equity loan with a second charge and then potentially remortgage the original loan and second charge at a later date, for example, when out of an early repayment charge period.