Finding your way in the home buying process can be tricky. Fortunately, the Help to Buy initiative made strides in assisting potential homeowners. In this post, we’ll shed light on the Help to Buy Valuation process.
An Overview of Help to Buy
Launched in April 2013, the Help to Buy programme brought about excitement in the real estate sector in the UK reminiscent of the 1980s Right to Buy scheme.
The equity loan component aspect of the programme catered solely to new-build properties, provided they were priced under £600,000 in England and £300,000 in Wales. And the role of the government was to equip buyers with an equity loan covering up to 20% (or 40% in London) of the house’s value.
The catch? Buyers needed a 5% deposit, while the remaining 75% came from a standard mortgage.
The incentive was clear: with rocketing property prices, this scheme granted many their first foothold on the property ladder.
Crunching the Numbers
The equity loans didn’t accrue interest for the initial five years. Thereafter, a 1.75% interest charge applied on the outstanding amount, with a yearly increment of RPI plus 1%. With the scheme’s 2013-2021 window closed, many beneficiaries now face the interest-bearing phase.
The repercussions of the pandemic added another layer of complexity. Rising inflation means those with older Help to Buy loans might grapple with interest rates surpassing their primary mortgage rates.
Plus, the government’s equity loan wasn’t a straightforward loan. Instead, it represented a stake in your property. Consequently, any property value fluctuations would affect the amount repayable to the government.
Understanding Help to Buy Valuation Moments
Selling your home: Got a property offer? That’s your cue to procure a Help to Buy Valuation. It’s essential that Target, the scheme’s administrators, gets the repayment amount right, and therefore they will use the higher of two figures: the RICS valuation or the sale price.
Repaying your loan: Know your property’s current value before you repay the Help to Buy Equity Loan. Should you have the funds on hand, request a valuation without delay. If you are relying on re-mortgaging, coordinate with financial experts. This ensures all milestones are within the three-month valuation validity.
What’s Included in a Help to Buy Valuation?
An RICS surveyor will thoroughly inspect your property. Factors like its condition, age, size, and specific features will influence its value. You will receive a report showcasing comparable local properties post-inspection.
To keep things on track, your valuation must align with Target’s stipulations. For example, the surveyor must be RICS-registered, independent, and not acquainted with you. The report, complete with at least three comparable properties and their sale prices, should be directed to Target. Learn more about what services an RICS surveyor offers by following the link.
Closing the Equity Loan Chapter
To repay your equity loan:
Timing precision: Stay within the three-month valuation validity.
Surveyor engagement: Commission a RICS-accredited surveyor for a Target-compliant valuation.
Legal assistance: Hire a conveyancing solicitor for the necessary legal proceedings.
Administration and arrears: Complete the Loan Redemption Form and remit a £200 fee.
Finalising the deal: Your conveyancer and the HCA (Homes and Communities Agency) will lock in the completion date with an ‘Authority to Complete’.
Sealing the deal: Your solicitor will manage the fund transfer to HCA, wrapping up the equity loan.
The Help to Buy initiative has been instrumental in aiding aspiring homeowners to step onto the property ladder. While it offered substantial benefits, borrowers should now be aware of the interest-bearing phase and the complexities associated with the equity loan. Navigating Help to Buy valuations requires careful timing and professional assistance. It's crucial to stay informed and take the necessary steps to close the equity loan chapter efficiently. As the programme continues to evolve, prospective homeowners should stay vigilant and seek expert guidance when needed.