The Help to Buy equity loan scheme helped hundreds of thousands of first-time buyers onto the property ladder in England. However, the scheme's unique structure means there are several common pitfalls that can cost homeowners thousands of pounds if left unaddressed. Here are the most frequent mistakes and practical advice on how to avoid each one.
1. Not Budgeting for Year 6 Costs
The most common mistake is failing to prepare for the transition from the interest-free period to the interest-charging period. For the first five years, the equity loan costs just £1 per month. From year six, interest begins at 1.75% of the equity loan value and rises every year after that. On a £50,000 equity loan, that is roughly £73 per month in year six alone, increasing annually by CPI plus 2%.
Many homeowners treat the five interest-free years as though they will last forever, spending or committing the money they could be saving. The best approach is to start setting aside the equivalent of the year six payment from day one, building a buffer that gives you options when the charges kick in.
2. Thinking You Owe a Fixed Amount
A surprisingly large number of Help to Buy borrowers believe they will repay the exact amount they originally borrowed. This is not how the scheme works. The equity loan is a percentage of your property's value, not a fixed sum. If you borrowed 20% and your home has risen from £250,000 to £350,000, you owe £70,000, not the original £50,000.
This misunderstanding can lead to serious financial shortfalls when selling or attempting to repay the loan. Always think of your obligation as a percentage share of the current value and check our Help to Buy Calculator regularly to understand what you may owe.
3. Forgetting the £1 Monthly Management Fee
While the £1 per month management fee during the interest-free period seems trivial, failing to pay it can cause complications. Target Group, who administer the scheme, require this payment to be up to date before processing any repayment or property sale. Some homeowners have found their sale delayed because they had unpaid management fees stretching back years. Set up a direct debit and forget about it, but do not neglect it.
4. Not Getting a RICS Valuation Before Repaying
Any repayment of the Help to Buy equity loan, whether full or partial, requires a valuation from a RICS-accredited surveyor. Some homeowners attempt to start the repayment process without one, only to find they cannot proceed until a valuation has been obtained, submitted to Target Group, and approved. This can add weeks to your timeline.
The valuation is valid for three months and typically costs between £150 and £300. If you are planning a repayment, arrange the valuation as your first step and build the cost into your budget. Remember that the valuation figure, not your own estimate or an estate agent's opinion, determines what you owe.
5. Waiting Too Long to Act
Procrastination is one of the most expensive mistakes with Help to Buy. Every year you delay repaying after year five, you pay escalating interest charges that do nothing to reduce the loan balance. These are pure costs with no benefit. If you have the means to repay through savings or remortgaging, doing so before or shortly after year five can save you thousands of pounds over the loan's lifetime.
Even if full repayment is not possible immediately, partial repayments of at least 10% of the property's current market value can reduce your ongoing interest charges. Developing a clear repayment plan well before the interest-free period ends is essential.
6. Not Exploring Remortgaging Options
Many Help to Buy homeowners stay on their original mortgage deal without exploring whether remortgaging could help them repay the equity loan. If your property has increased in value and you have built up equity, a remortgage could release enough funds to clear the Help to Buy loan entirely. This converts your government equity loan into a standard mortgage with a fixed, predictable rate.
Speak to a mortgage broker who has experience with Help to Buy cases. They can assess whether you have enough equity, find competitive remortgage deals, and coordinate the process with Target Group. The earlier you explore this option, the more flexibility you will have.
7. Ignoring Rising Interest Rates
The Help to Buy interest rate formula means your charges increase by CPI plus 2% every year, regardless of what is happening with the Bank of England base rate. Even in a low-inflation environment, the built-in 2% premium ensures your rate always climbs. In periods of high inflation, the increases can be severe.
Do not assume that because general mortgage rates are stable, your Help to Buy costs will be too. The two are completely independent. Monitor your equity loan interest charges each year and factor them into your household budget alongside your mortgage payments, council tax, and other housing costs.
Avoiding these common mistakes comes down to understanding the scheme's mechanics and planning proactively. Use our Help to Buy Calculator to model your specific circumstances and take control of your equity loan before rising costs take control of you.