Mortgage question
Should I pay off Help to Buy before interest kicks in at year 5?
If you bought between 2018 and 2021, redeeming before year 6 avoids a 1.75% + CPI charge — roughly 4.75% in April 2026 — on a balance that tracks your home’s current value. It only pays off if your remortgage rate (around 5.15–5.30% on a best-buy 85% LTV 5-year fix) plus redemption fees beat the cost of holding the loan. For most 2026 homeowners with growing equity, redemption wins.
The short answer: usually yes, but run the numbers
For most 2018–2021 buyers, redeeming in year 5 or early year 6 saves money once you account for three things: Help to Buy interest now compounds on a balance that grows with your home’s value; the year-6+ rate of roughly 4.75% is close to — but often below — 2026 remortgage rates; and the equity loan’s hidden cost is the staircase of future house-price growth you’re sharing with Homes England. Redeem and every future £ of growth is yours.
That said, there’s no single right answer. Break-even depends on your rate, your home’s expected growth, and whether you can actually afford the remortgage capital raise. This is information, not regulated advice.
What does Help to Buy actually cost from year 6?
From year 6 onwards Target charges 1.75% + CPI (for loans issued from April 2021) or 1.75% + RPI (for pre-April 2021 loans). With April 2026 CPI running at 3.0% and RPI typically 0.7–1.0pp higher, that puts annual interest at:
| Loan vintage | Year-6+ formula | Effective rate April 2026 |
|---|---|---|
| 2021 onwards | 1.75% + CPI (3.0%) | ~4.75% |
| Pre-2021 | 1.75% + RPI (~3.5–4.0%) | ~5.25–5.75% |
Crucially, this interest is charged monthly on the original loan amount (not the current property share) — so it’s a cash cost, but it doesn’t compound into a bigger equity share. The bigger cost is the equity-sharing mechanic itself: if your home grows 3% a year, Homes England’s 20% slice grows too.
Worked example — redeem now vs wait
Take a 20% Help to Buy loan on a £250,000 new build from 2019. Home is worth £310,000 in April 2026. Outstanding 20% share = £62,000 on today’s value.
Option A — redeem now via remortgage Remortgage from 65% to 85% LTV at a 5-year fix of 5.20% to raise the £62,000. Additional monthly cost on the uplift: roughly £340 a month. Redemption fees (RICS valuation £450, Target admin £200, solicitor £700 + VAT, Land Registry £30) ≈ £1,500. Home-price growth (say 2% a year) is now 100% yours.
Option B — hold the loan for 5 more years Year-6+ interest on original £50,000 loan at 4.75% = £2,375 a year (£198 a month). If the home grows 2% a year, by 2031 it’s worth ~£342,000 — the 20% share has grown to £68,400 (£6,400 more than today). Total holding cost over 5 years: ~£11,875 interest + £6,400 extra equity share = £18,275.
Option A total cost over 5 years: roughly £20,400 (£340 × 60 months) + £1,500 fees = £21,900 — but you’ve captured 100% of any growth above £310,000.
In a flat or rising market, redeeming wins once house-price growth averages ~1.5% a year. In a falling market, holding may win. Run your own numbers on the remortgage calculator before committing.
When it probably doesn’t make sense to redeem
- You’re planning to sell within 18–24 months. The redemption fees won’t have time to pay back — better to redeem at sale.
- You can’t clear the 75% main-loan LTV cap that most remortgage lenders apply when a Help to Buy charge remains. See can I remortgage with a Help to Buy equity loan still in place.
- Your local market is flat or falling and you can stomach the annual interest cost as a hedge.
- You’d drain your emergency fund to do it. Don’t wipe out your cash buffer to save 0.5pp a year.
How to decide — a 5-minute test
- Get a free online valuation estimate (a real RICS valuation comes later).
- Calculate 20% (or your original share %) of that figure — that’s your redemption sum.
- Check your best remortgage rate at the new LTV (product transfer vs remortgage guide).
- If remortgage rate + fees over 5 years < year-6+ Help to Buy interest + expected equity-share growth, redeem.
For the mechanics, see how to pay off my Help to Buy equity loan.
Common misconception: “Year-5 interest starts suddenly on my 5-year anniversary”
It actually kicks in on the first day of year 6 — i.e. the 61st month — and Target will write to you 3–6 months before then. You don’t have to redeem exactly on the anniversary, and a few weeks either side doesn’t make a meaningful difference. What matters more is lining up your remortgage completion date with a full redemption (or partial staircasing) so you’re not paying two sets of fees. Information, not regulated advice — speak to a qualified broker and solicitor before acting.
Sources
Information, not regulated advice. Mortgage Notes is not an FCA-authorised mortgage adviser. For a recommendation on your specific circumstances, speak to an FCA-authorised broker.