HELP TO BUY VALUATIONS EXPLAINED
What is Help to Buy?
Help to Buy was the name of a Government programme which was first introduced in April 2013. It was seen by some at the time as the biggest government intervention in the housing market since the Right to Buy scheme of the 1980’s. Although there were several initiatives under the umbrella of Help to Buy, it is the equity loan scheme which is our focus for this blog post.
The Help to Buy equity loan scheme was only available for new-build homes under a certain value (less than £600,000 in England and £300,000 in Wales). The government would provide an equity loan for up to 20% of the property value (40% within London) if the buyers could provide a minimum of a 5% deposit. The remaining 75% would need to be borrowed from a mortgage lender on a repayment basis. The theory being, that with souring house prices the scheme would provide a ‘leg-up’ for first time buyers or those with a low deposit, to help get on and climb the property ladder.
The loans were interest-free for the first five years. Following the interest-free years, they would initially be charged at 1.75% of the outstanding amount as interest - with the fee increasing each year by RPI plus 1%. This particular guise of Help to Buy ran from 2013 to 2021 and as such many homes sold via the scheme are reaching the end of the interest free period.
With high inflation off the back of the pandemic, many Help to Buy purchasers (especially those in years 7+ of their loan) could end up paying much higher interest rates on their Help to Buy loan, than their remaining mortgage.
Furthermore, unlike with mortgages from banks or building societies, the equity loan effectively meant that the government purchased a percentage stake in the property. Therefore, upon redemption of the loan, they would be entitled to their percentage of any uplift or decreases in the value of the home.
The average property price in Warwickshire has increased by 8.3% in the twelve months leading up to October 2021. Therefore, considering this, plus the current levels of inflation and rising interest fees on loans in year 7 onwards, redeeming the equity loan as soon as financially possible could well be the most economical option for many.
If you believe you might be in this position, it is important to speak to your own financial adviser.
When do I need to get a Help to Buy Valuation?
If you have bought a home with a loan through the Help to Buy scheme and you are looking to redeem the loan, re-mortgage or sell your property, then Target, who have been appointed by the Homes and Communities Agency (HCA) to administer the scheme, require you to get an independent Help to Buy Valuation report from a RICS registered valuer.
In accordance with Target requirements, please keep in mind that your Help to Buy valuation will only be valid for 3 months. In situations where the loan redemption or sale has not been completed within 3 months of the original valuation date, an additional desktop valuation will be needed.
If you are looking to sell your property…
After you’ve received an offer for your property, it’s time to get a Help to Buy Valuation. We typically advise clients against getting a RICS Valuation before this point, as finding a buyer for the property and completing the conveyancing process within three months, before the valuation expires can be tricky.
A Help to Buy Valuation will determine the amount repayable in direct proportion to the current market value of the property, and must be conducted by RICS qualified surveyors. It’s important to note that Target will base the repayment figure on whatever the higher value is; the RICS valuation or the agreed purchase price. This ensures that in the event the property is being undersold, the repayment figure is based on market value.
If you are planning to pay off the loan…
Before you start paying off the loan, it’s worth being aware of the property market and value. The more your property’s value has increased, the more you’ll have to pay back. Being aware of the up-to-date value of your property can help you find out when it’s the right time to repay the Help to Buy Equity Loan.
In terms of timings, our advice can differ depending on whether you are re-mortgaging to redeem the loan, or if you have the savings ready to self-fund the loan redemption. For the latter, we typically advise clients to instruct us to carry out the valuation straight away. However, if re-mortgaging we normally liaise with clients’ financial advisors to ensure that any mortgage completion dates will fall within three months of the valuation date. It’s best to get the initial timing’s right to avoid having to obtain a desktop extension at extra cost.
What does a Help to Buy Valuation involve?
A RICS Qualified Surveyor will visit and assess your property, inspecting both the exterior and interior of the building. Property condition, age and size will be taken into consideration, as well as the presence or absence of some features (for example - off-street parking and gardens). Research is carried out to find and analyse comparable evidence in the locality, with a minimum of three comparable properties provided on the report.
Once the inspection is complete and electronic PDF copy of the report will be sent by email. At Richard Russell Surveyors, we return our completed valuation reports within one working day of the inspection.
What are the valuation requirements to be compliant with Target?
The Valuer must be appropriately qualified and RICS registered
The Valuer must be independent and not connected to an estate agent
The report must be on company headed paper, signed by the RICS surveyor and addressed to Target
The Valuer MUST consider at least 3 comparable properties and sale prices
The Valuer must not be known or related to you
The Valuer must assess the interior of the property and provide a full valuation report
Valuations carried out for bank or mortgage purposes are not acceptable
A copy of the valuation report must be supplied to Target; the inspection date must be shown on the report
How do I repay my Help to Buy equity loan?
1. Work out your timings.
As per our advice above, whether you’re selling your property or looking to redeem the loan, it is important to time things so that any anticipated completions take place within three months of the valuation date. This will save having to spend extra on desktop extensions.
2. Instruct a surveyor.
When you’re happy with the timelines, you need to instruct a RICS qualified and regulated surveyor to provide you with a Target compliant valuation report. The government's equity stake in the property can then be calculated.
3. Find a conveyancing solicitor.
You must instruct a solicitor to carry out the required legal processes. This can be done at the same time as you instruct a surveyor, however some clients prefer to ensure their finances stack-up before also spending money on legal fees.
4. Pay the administration fee and any arrears.
You’ll need to complete the Loan Redemption Form and pay a £200 administration fee.
5. Receive your redemption letter.
You’ll be sent a redemption letter, which will outline your calculated repayment figure. 6. Arrange a completion date.
Your conveyancer will arrange a completion date on your behalf and the Homes and Communities Agency (HCA) will provide ‘Authority to Complete'. 7.Transfer your funds.
Your solicitor will arrange the transfer of funds to the HCA and your equity loan will be settled.
Richard Russell Surveyors meet all of Target HCA's requirements for Help to Buy Valuations. We have a 100% record of all valuations being accepted.