When Interest Starts on a Help to Buy Equity Loan

A Help to Buy equity loan charges no interest for the first five years. From year six you pay interest monthly, starting at 1.75% of the equity loan amount you borrowed, and the rate rises every April after that¹.

The charge is not a normal mortgage rate. It is a fee for the government's share of your home, and it does not pay the loan back: paying interest does not count towards paying back the equity loan³. The loan itself is repaid separately, in part or in full, usually when you sell or remortgage¹.

Two things catch people out. The interest-free clock runs from the equity loan, not from the day you first viewed the property, and the rate can rise even in a year when inflation is zero or negative¹. This page sets out when the fee starts, how it is worked out, how it grows, and what reduces it.

Interest-free for the first 5 years

The equity loan is interest free for the first five years⁴. Official guidance puts it plainly: you are not charged interest for the first 5 years, and you start to pay interest from year 6, on the fifth anniversary that you took out your equity loan². Interest payments start after the first five years and are then paid monthly until the loan is repaid in full¹.

The five years is measured from the equity loan, which is normally dated at completion. In Wales the wording is slightly different but the effect is the same: no interest is charged for the first 5 years of the equity mortgage, and interest begins from year 6⁶. The Welsh post-completions guide says monthly interest is payable from the fifth anniversary of purchasing the property, as set out in the personal worked example given on completion⁷.

That worked example matters. It is the document that tells you your own figures, and it is issued when you buy rather than when the fee starts. If you no longer have it, the scheme's repayment guide and the paying interest guidance are the places to check the rules¹.

The independent evaluation of the scheme describes the same structure: the equity loan was interest free for the first 5 years, with interest starting from 1.75% of the original loan amount⁸.

The interest fee after year 5: 1.75% of the outstanding loan

In year 6 the interest rate is 1.75%¹. The scheme's own example works it through on a £200,000 property with a 20% equity loan of £40,000: (£40,000 x 0.0175) ÷ 12 = £58.33 a month¹.

The base for the charge is the amount you borrowed, not the value of your home and not the amount still outstanding. Official guidance describes the rate as starting at 1.75% of the equity loan amount you borrowed¹, and the evaluation describes interest starting from 1.75% of the original loan amount⁸. Help to Build, a separate scheme, uses the same wording: in year 6 you pay a total of 1.75% interest on the equity loan amount you borrowed, divided into 12 monthly instalments³.

Part repayment changes the calculation. After a part repayment, the monthly interest is worked out on the percentage you have left to repay and the original purchase price². So if you have repaid half the loan, you pay interest on the half that remains, but the figure is still anchored to what the home cost when you bought it. The scheme's own example uses a £10,000 balance after a part repayment: £10,000 x 1.75% = £175 a year, or £14.58 a month².

How the fee rises each year with inflation

From year six a fee of 1.75 per cent is payable, which rises annually by inflation plus 1%⁴. Official guidance describes the mechanism as the increase in inflation, if any, applied each April¹. Interest rates charged on the equity loan rise every year starting from year 6².

One detail is easy to miss: your interest rate will increase each year from year 6, even when inflation is 0% or less¹. A year of falling prices does not cut the fee.

The scheme's own illustration shows what a rise looks like in cash. On an equity loan of £62,000 with RPI at 5%, a 6% increase takes the annual interest to £1,150.10, or £95.84 a month¹. The same guidance also carries a figure of £1,204.35 for the same scenario, and the two do not agree; where they conflict, the monthly figure of £95.84 is the one that matches the £1,150.10 annual total.

Wales uses a different index and a different margin. Under Help to Buy Wales, interest fees rise each year in April in line with the Consumer Price Index (CPI), plus 2%⁹. Help to Build, the scheme for people building their own home, uses the same CPI plus 2% formula from year 7 onwards³.

Reducing or repaying the loan to cut the fee

Because the monthly charge is tied to the share you still owe, paying part of the loan back reduces it. After a part repayment, the monthly interest is based on the percentage you have left to repay and the original purchase price². The loan can be repaid in part or in full at any time, for example when you sell your home or remortgage¹.

There are costs attached to acting. You will need to pay an admin fee when you apply to make changes to your equity loan⁵, and the published fee for a remortgage is £115⁵. When you bought your home with an equity loan, you agreed to pay monthly interest and management fees when they are due¹⁰, so the interest is an obligation rather than an optional extra once year six arrives.

If you are raising money through your existing lender rather than remortgaging elsewhere, the permitted reasons are narrow. One lender states that additional lending can only be considered for staircasing, using the proceeds from the additional loan to repay your equity loan, essential modifications, and transfer of equity, which means purchasing the full equity of the property from the current joint borrower¹¹. Another sets out the same three purposes for Help to Buy customers¹³.

Overpaying on a loan generally helps you pay it back more quickly and saves interest¹⁴, though the equity loan fee works differently from a mortgage rate and is not reduced by overpaying your mortgage. The route that cuts the fee is repaying the equity loan itself.

Staircasing or repaying in full: how each one works

Staircasing means buying more of the equity loan in stages rather than clearing it in one go. One lender describes the option as borrowing more to reduce or repay your Help to Buy equity loan, either in stages, known as staircasing, or all at once, with the extra borrowing unable to be used for any other purpose¹¹. The same lender's criteria list staircasing, essential modifications and transfer of equity as the only purposes it will consider¹².

Repaying in full is the simpler version: the loan is cleared in a single payment, usually when you sell or remortgage¹. Both routes need a valuation of the home, and the scheme sets rules on who can carry it out. For Help to Buy: Equity Loan (2021-2023), the valuer must be a RICS member or fellow (MRICS or FRICS)¹⁵.

In Wales the repayment rule is tied to value at the time you repay. Under Homebuy Wales you can repay the loan before you sell your home, in which case you repay based on the value of your home at that time¹⁶. That is a different basis from a fixed sum, and it means the amount owed moves with the market.

Before committing, read the scheme's repayment guide² and your lender's own material. One lender tells customers thinking about reducing or paying off a Help to Buy equity loan to read its implications and considerations document first¹⁷. If you are remortgaging, check whether your current deal carries an early repayment charge, because that sits alongside the scheme's fees; independent guidance on equity release plans makes the same point about checking early repayment charges before choosing a product¹⁸.

Does the London Help to Buy loan of up to 40% have the same interest terms?

Yes. The London version changes the size of the loan, not the way interest works. Help to Buy: Equity Loan let people borrow up to 20% (40% in London) of the home's purchase price², and the evaluation records that the loan was worth up to 20% of the property value, increased to 40% in London from February 2016⁸. The buyer needed to take out a 75% loan-to-value mortgage, or less in London⁸.

A London lender describes the terms in the same shape as the rest of the scheme: you will not have to pay borrowing fees or interest on the equity loan for the first 5 years after buying your home¹⁹. The larger loan does mean a larger fee once year six arrives, because the charge is a percentage of the amount borrowed¹.

The evaluation also records a market effect worth knowing about. It estimated that the increase in the maximum loan value in London led to an 8% increase in new build prices in London⁸. That is a finding about the scheme as a whole, not about any individual purchase.

Who could use an equity loan, and what replaced it

The English scheme was not limited to people buying their first home. Independent guidance describes Help to Buy: equity loan as a shared equity scheme for first time buyers and existing homeowners who want to move⁴. Some lenders describe it more narrowly as being available to first-time buyers purchasing a new-build property²⁰, so the scheme rules and a lender's own criteria are not always worded the same way.

Help to Buy Wales works differently and is still running on its own timetable. It provides an interest-free loan for the first 5 years, up to 20% of the property value²¹. Applications for Help to Buy Wales must be submitted by 31 March 2027⁹.

A newer scheme has been announced for England. People will be able to access equity loans with an initial interest free period²², and independent coverage describes an initial interest-free period on the equity loan²³. The detail of that scheme is not yet settled, so anyone weighing it up should treat the terms as unconfirmed.

If you are still deciding how to buy, the wider picture of first-time buyer schemes in England, Scotland, Wales and Northern Ireland sets out what each nation offers, and the Help to Buy equity loan in England page covers the scheme itself. For the Welsh scheme, see Help to Buy - Wales.

Where to get help if the fee becomes a problem

The interest is a monthly obligation, and missing it has consequences. When you bought your home with an equity loan, you agreed to pay monthly interest and management fees when they are due¹⁰. If you are behind, the scheme publishes separate guidance on arrears¹⁰.

If the position is more serious than a missed payment, free and impartial help exists. StepChange, a debt charity, sets out how remortgaging can release equity or reduce a monthly mortgage payment²⁴, and its guidance on equity release tips covers the questions to ask about early repayment charges¹⁸. In Wales, the Help to Stay scheme offers free financial advice and a shared equity loan to reduce your monthly mortgage payments to a more affordable level²⁵.

Before any of that, the practical step is to check your own paperwork: the personal worked example issued on completion, the repayment guide², and the paying interest guidance¹. Those three documents carry the figures that apply to your loan.