The policy changes announced by the government recently surrounding the Help to Buy scheme were actively encouraged by UK Finance.

The scheme provides borrowers with a low-interest equity loan towards a new-build home with a purchase price of up to £600,000. Borrowers pay a five per cent deposit, the government lends up to 20 per cent (up to 40 per cent in London) and a mortgage of up to 75 per cent (55 per cent in London) makes up the rest. No interest is payable for the first five years. 

As the first cohort of those buying with Help to Buy came to remortgage it became apparent that there was uncertainty about how long the government's equity loan would last. If the homeowner wanted to take out a new 25-year (or longer) mortgage after the initial period, it wasn't clear whether the equity loan could be extended beyond 25 years after the original property purchase date. If the equity loan ends before the mortgage, under the FCA's responsible lending rules, not only would the lender need to factor in the interest payments on the equity loan but they would also need to be confident about the customer's repayment strategy for the HTB equity loan as it is an interest-only mortgage. Following the credit crisis, many lenders no longer offer interest-only loans.

The change made by the government makes it clear that the term of the equity loan will match that of the main mortgage.  Homes England, which delivers HTB on behalf of the government, have made it clear that the extension will happen automatically. This means that the lender does not need to consider how the customer will repay the equity loan, which will most likely happen when the property is sold. This gives lenders confidence to offer remortgage products to Help to Buy customers without changing their policy on interest-only lending and means that customers can choose the term of the mortgage that suits their needs, rather than being limited to a 25-year term.

The previous uncertainty has prevented some lenders from offering remortgage products and we hope that this announcement will allow new entrants into the market, offering customers more choice.