Skip links

What is the rate of interest on my Help to Buy loan and how does inflation impact it?

What is the rate of interest on my Help to Buy loan and how does inflation impact it?

When you’re part of the Help to Buy scheme, understanding how the interest rate on your equity loan relates to inflation is crucial for managing your finances effectively. Especially relevant is the adjustment of interest rates after the initial interest-free period, which directly ties into the Consumer Price Index (CPI). This article provides a clear understanding of how this works and what it means for your repayments.

The Interest-Free Period and Beyond

Initially, the Help to Buy equity loan is appealing due to its interest-free period for the first five years. However, starting from the sixth year, an interest rate is applied. This is where inflation, measured by the CPI, becomes a significant factor.

How Inflation Impacts Your Interest Rate

The CPI Effect

The annual interest rate on the equity loan, post the five-year mark, starts at 1.75% and is then adjusted each year in April. The adjustment is based on the CPI rate of inflation plus an additional 1%. This means that if inflation rises, so does the interest rate on your loan.

A Personal Example

To illustrate this with a personal example based on the most recent CPI data – please contact us with your information to hand. We’d be delighted to help you understand your current agreement to offer advice and guidance on what this means to you.

Planning for Interest Rate Changes

Budgeting for Rate Increases

Understanding this relationship between inflation and your loan’s interest rate is key to financial planning. As inflation rates vary, it’s crucial to keep an eye on these changes and how they could impact your future loan repayments.

Seeking Advice

Given the complexities, consulting with an advisor can provide clarity and help you prepare for potential increases in your loan repayments. They can offer guidance tailored to your situation, considering the fluctuating nature of inflation and interest rates.

The Help to Buy equity loan scheme, while beneficial in aiding homeownership, requires a nuanced understanding of how interest rates are affected by inflation. Being aware of this relationship and planning accordingly can help manage your repayments effectively.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Houz Mortgages does not charge a fee for mortgage advice.

Please be aware that by clicking on to the above links you are leaving the Houz Mortgages website. Please note that Houz Mortgages nor HL Partnership Limited are responsible for the accuracy of the information contained within the linked site(s) accessible from this page.

Leave a comment