Homeowners who bought their properties under the first round of Help to Buy equity loans are being urged to consider their options as their interest-free period comes to an end.
Steve Carruthers, head of mortgage distribution at Newcastle Intermediaries, said: "Now is the time for borrowers to re-mortgage if you have a Help to Buy equity loan. You’re probably now starting to pay interest on your equity loan and this will only increase."
The Help to Buy Equity Loan scheme, launched in 2013, offers borrowers a government loan of up to 20 per cent of the cost of a new-build home, interest-free for the first five years.
This year the first round of loans reached the end of their interest-free period, requiring some borrowers to pay interest on their loans.
David Hollingworth, associate director of communications at London & Country Mortgages, said people have several options when their equity loans reach the end of the interest-free period, including doing nothing, repaying the loan in full, or paying off part of the loan in a staircasing arrangement.
He said: "They can obviously do nothing and carry on and the equity loan will attract an interest rate of 1.75 per cent in the first year and then rise with inflation.
"That might be a trigger for people to consider whether they should exit the loan."
Mr Hollingworth said if homeowners have had a change in circumstances, such as higher earnings or growth in the value of the property, they can consider raising capital to repay the loan and consolidating it into their mortgage.
"There is also an option to reduce part of the equity loan, usually by paying off half of it, so 10 per cent for equity loans that were worth 20 per cent in a staircasing arrangement," he said.
However, Mr Hollingworth added only a small number of lenders were active in the staircasing market.
Newcastle offers its clients three options: if there is at least 5 per cent equity in the home after 5 years they can raise capital to repay the loan, consolidating this with their mortgage; staircasing; and to continue to pay their mortgage separately, or transfer their existing mortgage as part of a remortgage process.
Rival the Cambridge Building Society meanwhile launched a range of Help to Buy mortgages for members looking to remortgage earlier this month.
Andy Lucas, chief operating officer at The Cambridge said at the time: "We are hearing from borrowers who are looking for choice of product when coming to the end of their current Help to Buy deal.
"With latest reports suggesting that over 150,000 households have already been helped by the scheme, there will be a growing remortgage market developing over the new few years."
Meanwhile, first-time buyers received good news on Budget day (29 October) as chancellor Philip Hammond announced a two-year extension to the Help to Buy equity loan scheme to 2023.
The extended loan scheme will be available on properties worth up to £600,000 in London.
