Help-to-buy scheme phase 2

uncle_rufus · 7 Oct 2013 at 14:54

Hey all,

Perhaps my searching skills are weak but I couldn't find a thread about this so here it is... Anybody looking at this scheme which launched today (well, the signing-up part at least)? I'm trying to make sense of the many, many opinions people have about it...

I get that it's potentially quite dangerous... interest rates can only really go up from here which could be a problem as far as payments are concerned, and also the value of the houses etc...

I definitely like the fact that this 2nd phase you don't end up with a mortgage and a ridiculous £40k - £50k equity loan... just the mortgage

Our situation is a couple earning about £45k between us, clean credit-history and I believe when we've looked into it before the bank/s seem to be happy to lend us of the order of £180k - £200k with a deposit between 5% and 10%... We have probably enough of a deposit for 5% just about once all the other costs of buying a house are taken from our savings...

My feeling is that if we could take advantage of this scheme but aim for a house which is big-enough that we won't be forced to move again in the future (when we have kids - planning to have 2 over the next I dunno, 10 years or so :rolleyes:

), then we can eliminate any worries about the value of the house - who cares if the prices rise/fall if you're not planning to sell?

So what are other people thinking? Hoping for a good discussion here to make sense of it all... Is the plan above completely ridiculous?

Glaucus · 7 Oct 2013 at 14:57

Didn't know it was open to registration, got any links.
Have they released all the details yet?

uncle_rufus · 7 Oct 2013 at 15:00

I think you have to phone or go into the bank (and supposedly certain banks have extended hours this week for the massive crushing stampede of rampant buyers - Daily Mail)... You should be able to find the news story about the announcement if you Google...

The actual date of the money being released is still Jan 2014

Glaucus · 7 Oct 2013 at 15:05

Yeah found some news articles. Nothing on how it works, i assume they just get 15% of property value guaranteed of the government if you default. Other than that its just a standard mortgage, no other costs/repayments.
I want to apply for 100k maybe 110k depending on repayment, % fixed term.
Will have to pop into natwest this week and see if they have any details.

One article says natwest will release the money before january as well.

At least it sounds like there's plenty of money and natwest is saying 25000 people over three years. As its not the best time for me to buy, this has been a very expensive year and next years going to be even more expensive. But don't want to miss it, i missed it last time they had a scheme for old houses as they ran out of funds.

State-backed lenders Royal Bank of Scotland (RBS) and Lloyds Banking Group, which together account for about one third of the mortgage market, have confirmed they will be taking part in the initiative, after the launch was brought forward from next January.

But several other major mortgage providers are still want to know further details about the costs and benefits of the scheme before deciding whether to add their names to the list.

The initiative, which is set to run until January 2017, will see the state offer guarantees totalling around £12 billion to unlock £130 billion of high loan-to-value mortgage lending.

Phase two of Help to Buy will initially be available under the NatWest, RBS and Halifax brands. RBS/NatWest plans to help 25,500 buyers through the scheme over the next three years and it will extend its opening hours to meet customer demand.

Customers who get access to these mortgages will be able to draw down funds as soon as they are approved and will not have to wait until the original launch date of January.

Windle · 7 Oct 2013 at 15:17

Glaucus said:
Yeah found some news articles. Nothing on how it works, i assume they just get 15% of property value guaranteed of the government if you default. Other than that its just a standard mortgage, no other costs/repayments.
I want to apply for 100k maybe 110k depending on repayment, % fixed term.
Will have to pop into natwest this week and see if they have any details.

One article says natwest will release the money before january as well.

Full details haven't been released yet which is why there isn't a huge amount of information on it. There are two parts of the scheme, Help to Buy Mortgage Guarantee and Help to Buy Equity Loan. The mortgage guarantee is the new part and seems to be by far and away the best option.

Mortgage guarentee you are right, the lender will get 15% of the property value guaranteed by the government with a 5% deposit paid by the buyer much like a bog standard mortgage. This is supposed to help loosen bank's purse strings as it will effectively mean they get a 20% deposit, your 5% plus 15% is guaranteed by the government and they will still be able to reposess if you fail to meet your repayments. On the flip side, as best I can tell from the information there is, because the government is basically fronting 15% of the risk, the lending criteria will be stricter in terms of credit history etc .

Equity loan remains similar to previous, government loans you up to 20% of the purchase cost and no interest repayments on that loan for first 5 years. After 5 years, 1.75% of the loan value repayable, increasing annually by RPI + 1%. This should be available to people who may have a slightly ropey credit history and therefore maybe aren't eligible for the mortgage guarantee scheme.

welshboy · 7 Oct 2013 at 15:19

Would it cost anything to try and apply for it, and if fail the credit scoring then its no big loss ?

Glaucus · 7 Oct 2013 at 15:20

Didn't even know they were doing an equity loan as well. Is that for existing houses as well? Or just new builds.
How can there be no/so little info if banks are offering it.

uncle_rufus · 7 Oct 2013 at 18:26

The equity loan version has been running for a while now but we were put off by the fact that you end up with a massive loan as well as the mortgage, and it's unlikely you'd be able to pay much of that loan off in the 5-years it's interest free for... Just another monthly outgoing eating up your disposable income and making it even less likely that you'd be able to survive any rise in interest rates on the mortgage...

The idea was that because the equity loan is effectively a 75% mortgage not 95% then the rate and monthly payments would be much cheaper to offset having the loan, but when we spoke to financial advisers and banks about it the amount we'd likely have to pay each month wasn't that much better for being on the better rate anyway

Glaucus · 7 Oct 2013 at 18:27

uncle_rufus said:
The equity loan version has been running for a while now but we were put off by the fact that you end up with a massive loan as well as the mortgage, and it's unlikely you'd be able to pay much of that loan off in the 5-years it's interest free for... Just another monthly outgoing eating up your disposable income and making it even less likely that you'd be able to survive any rise in interest rates on the mortgage...

The idea was that because the equity loan is effectively a 75% mortgage not 95% then the rate and monthly payments would be much cheaper to offset having the loan, but when we spoke to financial advisers and banks about it the amount we'd likely have to pay each month wasn't that much better for being on the better rate anyway

The existing ones, only been for new builds.
As for paying it off it depends if you mortgage yourself upto the eyballs or not.

uncle_rufus · 8 Oct 2013 at 08:55

Glaucus said:
The existing ones, only been for new builds.
As for paying it off it depends if you mortgage yourself upto the eyballs or not.

Well of course, but I'd still far rather not have a massive additional loan on top of the mortgage payments - which is what this 2nd phase of the scheme is offering...

Edit: What I mean is under the 1st part of the scheme say on a typical £200k property you'll have your £10k deposit (5%) and an equity loan of £40k (20%) interest free for 5 years... To pay it off before the interest kicks in you'd need to find an extra ~£666 (the mortgage of the beast!!!) a month on top of your mortgage payments (which I believe worked out something just shy of £1,000 a month)... If you can afford that every month on top of all your bills & food plus a bit of security for interest rate rises and having any kind of quality of life with what's left over then you're easily in a position to save a bigger deposit anyway - surely? Well that was my reasoning at least

meandu229 · 8 Oct 2013 at 09:04

uncle_rufus said:
Well of course, but I'd still far rather not have a massive additional loan on top of the mortgage payments - which is what this 2nd phase of the scheme is offering...

Edit: What I mean is under the 1st part of the scheme say on a typical £200k property you'll have your £10k deposit (5%) and an equity loan of £40k (20%) interest free for 5 years... To pay it off before the interest kicks in you'd need to find an extra ~£666 (the mortgage of the beast!!!) a month on top of your mortgage payments (which I believe worked out something just shy of £1,000 a month)... If you can afford that every month on top of all your bills & food plus a bit of security for interest rate rises and having any kind of quality of life with what's left over then you're easily in a position to save a bigger deposit anyway - surely? Well that was my reasoning at least

I thought the general idea was to re-mortgage and take the extra 40k into your mortgage after 5 years as by then you would be in a better place to get a mortgage (hopefully)

uncle_rufus · 8 Oct 2013 at 09:28

meandu229 said:
I thought the general idea was to re-mortgage and take the extra 40k into your mortgage after 5 years as by then you would be in a better place to get a mortgage (hopefully)

I did wonder about this, so you mean you would just pay off whatever of the equity loan you could in the 5 years (perhaps none of it) and then absorb it into the mortgage... I guess my concern there would be what guarantee would you have that the bank would be willing to let you do that? Wouldn't they rather keep you locked into the additional loan as they start to charge you for it knowing full-well that you won't be in a position to easily repay it?

krooton · 8 Oct 2013 at 09:42

uncle_rufus said:
Well of course, but I'd still far rather not have a massive additional loan on top of the mortgage payments - which is what this 2nd phase of the scheme is offering...

Edit: What I mean is under the 1st part of the scheme say on a typical £200k property you'll have your £10k deposit (5%) and an equity loan of £40k (20%) interest free for 5 years... To pay it off before the interest kicks in you'd need to find an extra ~£666 (the mortgage of the beast!!!) a month on top of your mortgage payments (which I believe worked out something just shy of £1,000 a month)... If you can afford that every month on top of all your bills & food plus a bit of security for interest rate rises and having any kind of quality of life with what's left over then you're easily in a position to save a bigger deposit anyway - surely? Well that was my reasoning at least

The interest rate of the equity loan after 5 years will still be MUCH lower than your base mortgage rate for many years though, the RPI + 1% increase is not a flat add to the initial 1.75%.

If the RPI is 4%, the overall interest rate increases BY 5%, so 1.75% becomes 1.84%.

As such, the scheme is better suited to FTB looking to sell up after a number of years, not for your forever-home.

krooton · 8 Oct 2013 at 09:47

meandu229 said:
I thought the general idea was to re-mortgage and take the extra 40k into your mortgage after 5 years as by then you would be in a better place to get a mortgage (hopefully)

Keep in mind, staircasing (paying off part, or all, of the equity loan) is done at the current value of the house, not purchase price, as it is a flat percentage.

You buy a £100k house using the scheme. You put in £5k deposit, government gives you a £20k loan, you take out a £75k mortgage for the rest.

In five years time the house value goes up to £150k. You want to buy out the equity loan, which is now £30k due to the increase in value.
Your remortgage will need to free up enough capital to cover that cost.

uncle_rufus · 8 Oct 2013 at 09:47

krooton said:
The interest rate of the equity loan after 5 years will still be MUCH lower than your base mortgage rate for many years though, the RPI + 1% increase is not a flat add to the initial 1.75%.

If the RPI is 4%, the overall interest rate increases BY 5%, so 1.75% becomes 1.84%.

As such, the scheme is better suited to FTB looking to sell up after a number of years, not for your forever-home.

Makes sense, cheers... but what about the 2nd phase of the scheme? (5% deposit, 95% mortgage, government guarantees 15% to the lender in the event of defaulting to reduce their risk)

JaWalks · 8 Oct 2013 at 09:55

krooton said:
The interest rate of the equity loan after 5 years will still be MUCH lower than your base mortgage rate for many years though, the RPI + 1% increase is not a flat add to the initial 1.75%.

If the RPI is 4%, the overall interest rate increases BY 5%, so 1.75% becomes 1.84%.

Are you sure about this? I thought it was 1.75% + whatever RPI is + 1%.

Regardless, if I was a FTB I wouldn't be interested in this. Just keep saving and wait for interest rates to go up. This is just the government buying votes IMO. Rising house prices = vote winner.

Relentless81 · 8 Oct 2013 at 10:01

I'm on the first stage and plan to sell within the first five years so the equity loan I saw as getting a free 20% mortgage, when I sell the property it will be valued, if its valued more than I originally paid the 20% is of that higher amount but if it gets valued less the 20% is also of that amount

I also put a 10% deposit down instead of the lowest possible 5% I cant remember the exact reason but it worked out better

covenantuk · 8 Oct 2013 at 10:03

Help to Buy second phase only makes sense if you don't have the money for a deposit. The higher interest rate charged by the lender on the mortgage to cover the guarantee premium charged by the government will more than offset the government subsidy.

Simply put it's not a way to get a cheap mortgage, it's a way to get a mortgage if you haven't got enough deposit.

mattyfez · 8 Oct 2013 at 10:15

Id be very interested to know what criteria they would be looking at for the credit checking etc, and weather overpayments can be made.

As someone else said I don't really want to apply if I might get rejected as I want to protect my credit record -I'm guessing a failed mortgage applications doesn't look great, especially if you want a mortgage in future!?

krooton · 8 Oct 2013 at 10:21

JaWalks said:
Are you sure about this? I thought it was 1.75% + whatever RPI is + 1%.

Unless it has changed from how the Homebuy Direct Equity Loan works (which we are on), then yes, I am sure.

Relentless81 said:
I also put a 10% deposit down instead of the lowest possible 5% I cant remember the exact reason but it worked out better

Well they only own 20% of your property, if you only put down 5% then they would own more, so when you sell you get to keep more shillings.