Help to buy...

[Jono8]

It's all very well pointing out what's available and saying it's not very hard, but that's not the information I'm after. I know what the scheme is and its intentions. What I'm after is the fine print, the things that people don't find out until it's too late, which is what people have started pointing out but the problem is that there's conflicting information being given.

http://www.helptobuy.org.uk/home-ownership-schemes/help-to-buy-equity-loans/

There is a whole 21 page guide that clearly explains everything at the bottom of this page (it eve has a very clear table on how the interest/fee works after the initial 5 years)

Then other than that there is the mortgage guarantee scheme but that is essentially the same as a normal mortgage (just that the government agrees to guarantee a percentages of it for the bank) and it enables people to have a deposit of only 5%

 

[mrbios]

I'll need to dig around, but given I have been on the scheme for 4 years, I did loads of research

The equity loan is essentially a low interest loan that just increases with inflation to stay relative. Even if inflation was 5% year on year, it would take 18 years to hit the same interest rate as our actual mortgage.

So have i got this right now then that first time buyers get a mortgage + a loan with a very small interest rate on it, and existing home owners get essentially a 95% mortgage where the repayments work in exactly the same way as a normal 95% mortgage would? I can't help but feel I'm missing some hidden cost.

I might pop into town in a few days and see if i can get a meeting with a mortgage advisor, see if i can get some more info.

http://www.helptobuy.org.uk/home-ownership-schemes/help-to-buy-equity-loans/

There is a whole guide that clearly explains everything at the bottom of this page

You're missing my point. I'm being cautious, i don't trust these things. Like the saying goes, if it sounds too good to be true it normally is. I'm looking for the catch, they're not going to point that out on their goverment page that's trying to sell the scheme.

 

[Jono8]

So have i got this right now then that first time buyers get a mortgage + a loan with a very small interest rate on it, and existing home owners get essentially a 95% mortgage where the repayments work in exactly the same way as a normal 95% mortgage would? I can't help but feel I'm missing some hidden cost.

I might pop into town in a few days and see if i can get a meeting with a mortgage advisor, see if i can get some more info.



You're missing my point. I'm being cautious, i don't trust these things. Like the saying goes, if it sounds too good to be true it normally is. I'm looking for the catch.

? Why would there be a catch? It is a government funded initiative to get people who have a small deposits on the housing ladder and get new homes sold.

If you sell the property within 25 years you don't even have to pay any of the equity loan back. You just have to give 20% of the sale back to the government.

 

[Maccapacca]

Fantastic for the government coffers.

Suppose I lend you £10 for a widget but instead of you paying me back £10 I own 10% however I have control of the market and in some way drive prices up by changing supply or demand.

What a great investment that'd be.

 

[Jono8]

Fantastic for the government coffers.

Suppose I lend you £10 for a widget but instead of you paying me back £10 I own 10% however I have control of the market and in some way drive prices up by changing supply or demand.

What a great investment that'd be.

Well it works out well for both parties. If the house you buy shoots up on value, yes the 10-20% of it that is technically a loan will increase but then so will the other 80% of it that you technically own/have mortgaged. If the price plummets then so will that 10-20% that you borrowed from the government.

If you can pay back all or at least of half of the equity loan in 5 years, you will probably be better off than simply taking out a larger loan to value mortgage with a much higher interest rate.

 

[Django x2]

Not really. 1.75 interest is lower than any mortgage interest rate you are likely to get. Also it means your mortgage will only be a 75% one which will command a better rate of interest and your monthly mortgage payments will be less than if you just took out a regular 90\95% mortgage.

As long as you do the sums and are sensible and start saving towards paying off the equity loan in good time, it is going to work out cheaper than a 95% mortgage.

The difference on the average mortgage between a 10 and 15% deposit (or even 25%) in terms of monthly payment is next to nothing (ave £200) so you would need to put that money aside as good practice for when the government come knocking

 

[Django x2]

Incorrect. From year 6 you get charged 1.75% of the equity loan.
Each year, that increases by the Retail Price Index + 1%, but not additively.

So if Year 7 saw RPI at 2%, the interest on the loan would increase by 3%, so 1.75% becomes 1.8% (not 4.75% like so many people think).

So, not incorrect then. I just didn't clarify that that was from year 6. If you think for even one minute that the people who are desperate to use this scheme to get on the property ladder, or buy a bigger house, can then afford to clear the government funded portion of the deposit within 5 years, then that would make you (not you personally) as deluded as the government for implementing the idea

 

[BunnyKillBot]

It isn't hard. There are just two different schemes running currently - the help to buy equity loan and the help to buy mortgage gaurantee.

Wrong. Our Eton Educated Illustrious Overlords managed to successfully pitch and launch a scheme with the same name as a previous scheme which did something similar but totally different. If you wan't to be condescending, kindly save it for swinging your clubs at the next polo pitch meet.

 

[Jono8]

Wrong. Our Eton Educated Illustrious Overlords managed to successfully pitch and launch a scheme with the same name as a previous scheme which did something similar but totally different. If you wan't to be condescending, kindly save it for swinging your clubs at the next polo pitch meet.

No, people were saying that it isn't explained very well and that there was conflicting information. I was pointing out that it is all set out very clearly on the actual website for the help to buy scheme....i.e. the first place people should be looking!

The pdf document is pretty clear cut and I don't see how people can be that confused by it?

 

[Mynight]

Incorrect. From year 6 you get charged 1.75% of the equity loan.
Each year, that increases by the Retail Price Index + 1%, but not additively.

So if Year 7 saw RPI at 2%, the interest on the loan would increase by 3%, so 1.75% becomes 1.8% (not 4.75% like so many people think).

Damn that's a hell of a lot better than I originally calculated. From the wording I assumed the 4.75% figure.

Maybe its time for me to reconsider.


Side note: it really doesn't bode well for Eton if the current lineup is their best offering

 

[krooton]

So, not incorrect then. I just didn't clarify that that was from year 6. If you think for even one minute that the people who are desperate to use this scheme to get on the property ladder, or buy a bigger house, can then afford to clear the government funded portion of the deposit within 5 years, then that would make you (not you personally) as deluded as the government for implementing the idea

No, you made it out as if every year, 1.75% got added to the loan.

Each year after the 5th, you pay 1.75% of your loan in fees, or you sell up within the 5 years to clear your equity loan.

Using my situation as an example. £100k mortgage, £37.5k equity loan, £15.5k deposit.

Year 6 = £656 in fees, or £55 a month
Year 7 (based on 2% RPI) = £675 in fees, or £56 a month
Etc

So if we sold at the end of year 7, total interest paid would have been £1,331.

If we had actually mortgaged that extra £37.5k at our mortgage rate (4%), total interest paid would have been around £8-10k. Sure, we would have had more equity in the property, but almost 25% of it would have been eaten up by interest.

So even if you don't sell up within the first 5 years, as long as you do not long after, you are better off.

 

[Jono8]

So, not incorrect then. I just didn't clarify that that was from year 6. If you think for even one minute that the people who are desperate to use this scheme to get on the property ladder, or buy a bigger house, can then afford to clear the government funded portion of the deposit within 5 years, then that would make you (not you personally) as deluded as the government for implementing the idea

But you only have to pay the equity loan off if you haven't sold/moved on after 25 years. I would imagine that most people going for this scheme will be young and buying their first property. Therefore it is unlikely they will be staying put for 25 years, so if they can't pay off the equity loan, they will simply have to give whatever percentage they have as an equity loan back to the government when selling.

You are still assessed as to whether you can afford it (there is a guideline monthly affordability percentage taking into account your mortgage payment and the equity loan fees e.t.c when compared to income) and you are still limited by your income as to how much you can borrow mortgage wise so you aren't going to get people on minimum wage suddenly being able to buy a 500,000 5 bedroom house

 

[feedtheram]

Is there a reason this is open to people who already own homes? I thought the whole point was to help people get on the housing ladder. It doesn't then make sense to open it to people who own homes already. Furthermore why are we helping people buy homes up to £600k!? If you are looking for a home of anything over £250k you shouldn't need help - if you do then look for a cheaper place.

All this at a time when the housing market is booming and demand is far exceeding supply. They should spend the money on more affordable houses.

 

[Jono8]

No, you made it out as if every year, 1.75% got added to the loan.

Each year after the 5th, you pay 1.75% of your loan in fees, or you sell up within the 5 years to clear your equity loan.

Using my situation as an example. £100k mortgage, £37.5k equity loan, £15.5k deposit.

Year 6 = £656 in fees, or £55 a month
Year 7 (based on 2% RPI) = £675 in fees, or £56 a month
Etc

So if we sold at the end of year 7, total interest paid would have been £1,331.

If we had actually mortgaged that extra £37.5k at our mortgage rate (4%), total interest paid would have been around £8-10k. Sure, we would have had more equity in the property, but almost 25% of it would have been eaten up by interest.

So even if you don't sell up within the first 5 years, as long as you do not long after, you are better off.

You can also pay off half the equity loan by staircasing which should be doable if sensible with savings before the interest/fees start in year 6. That way you can obtain a nice chunk of equity interest free and half your fees for the rest of the term/until you sell up.

 

[rossk26]

Only 1 scheme is open to people who already own homes. The mortgage garauntee scheme, which isn't really groundbreaking stuff, many mortgage companies have been offering 95% mortgages for a while now.

The other scheme, which is on paper more exciting is the equity help to buy scheme, where you pay 5% deposit, government pays 20% and you get a mortgage for 75%. Couple issues with this one, it's for first time buyers only, and you have to buy a brand new build. So you are limited to what you can buy, and you are paying over the odds for what you are getting. However it allows people who can't save up a lot, to get a nice brand new house!

I looked into this, and in an ideal world if I had 25% deposit in my bank, I'd take up the help to buy scheme, giving only 5% of my cash, and accruing interest on the remaining 20%. Then when year 5 comes pay back the 20%. However nobody can predict how much that 20% will be in 5 years time... There must be a clause for the government to not accept a pay out if the house price has fallen?

 

[Jono8]

I looked into this, and in an ideal world if I had 25% deposit in my bank, I'd take up the help to buy scheme, giving only 5% of my cash, and accruing interest on the remaining 20%. Then when year 5 comes pay back the 20%. However nobody can predict how much that 20% will be in 5 years time... There must be a clause for the government to not accept a pay out if the house price has fallen?

It specifically says in the guide that if the house value falls so does the equity loan and therefore how much you pay back.

"As long as you have complied with all your obligations in the Help to Buy mortgage deed, you will not be required to provide for any shortfall in the equity loan if you sell when values have fallen."

There is even a table showing it as well. The equity loan is just that, 20%(well up 20%) of the value of your property.

 

[Django x2]

But you only have to pay the equity loan off if you haven't sold/moved on after 25 years. I would imagine that most people going for this scheme will be young and buying their first property. Therefore it is unlikely they will be staying put for 25 years, so if they can't pay off the equity loan, they will simply have to give whatever percentage they have as an equity loan back to the government when selling.

You are still assessed as to whether you can afford it (there is a guideline monthly affordability percentage taking into account your mortgage payment and the equity loan fees e.t.c when compared to income) and you are still limited by your income as to how much you can borrow mortgage wise so you aren't going to get people on minimum wage suddenly being able to buy a 500,000 5 bedroom house

How many young people do you know who can purchase a house upto £600k?

In addition, given that only a few lenders are on this list, they are defined under the Mortgage Council as to what their rates are, and currently, not all that glorious 4.99% seems to be the lowest for HTB so I'm unsure why people think that having a 25% deposit (through HTB) assumes a better mortgage rate, Vs someone with actual 25% of their own cash, as that doesn't seem to be the case.

Don't forget the 0.9% fee payable to the government too (on top of all other fees) if not already added into the mortgage. You also can't rent out your existing home or the HTB home

 

[krooton]

How many young people do you know who can purchase a house upto £600k?

In addition, given that only a few lenders are on this list, they are defined under the Mortgage Council as to what their rates are, and currently, not all that glorious 4.99% seems to be the lowest for HTB so I'm unsure why people think that having a 25% deposit (through HTB) assumes a better mortgage rate, Vs someone with actual 25% of their own cash, as that doesn't seem to be the case.

Don't forget the 0.9% fee payable to the government too (on top of all other fees) if not already added into the mortgage. You also can't rent out your existing home or the HTB home

Whilst I agree that the £600k thing is excessive, everything else you have said just cements the fact that for certain people in specific situations, the scheme is great.

We would not have been able to buy without it. We have maxed out our mortgage ability, and renting would have seen us paying 50% more than our current capital repayments, and then needing to save for a larger deposit ON TOP of that. Nope.

So now we have 75% stake in a property that has risen in value by 30% over the past 4 years. If we had rented and saved, we would have maybe had £9-10k saved, as we would have been hemorrhaging in rent.

 

[Jono8]

How many young people do you know who can purchase a house upto £600k?

In addition, given that only a few lenders are on this list, they are defined under the Mortgage Council as to what their rates are, and currently, not all that glorious 4.99% seems to be the lowest for HTB so I'm unsure why people think that having a 25% deposit (through HTB) assumes a better mortgage rate, Vs someone with actual 25% of their own cash, as that doesn't seem to be the case.

Don't forget the 0.9% fee payable to the government too (on top of all other fees) if not already added into the mortgage. You also can't rent out your existing home or the HTB home

For the equity loan part most of the banks I have talked to offer their more standard APR on the help to buy with the equity loan (Barclays for example are 3.6%). It is the mortgage guarantee that seems to attract a minimum of 4.99% APR.

Me and my gf are looking to buy our first home and we are thinking strongly about buying a new build with the help to buy equity loan. It increases our budget, and via my calculations should significantly save on interest.

We will be paying less on a mortgage than we do renting at the moment, which will enable us to save more, which will go towards paying off part of the equity loan before the 5 years is up. That way we will pay a lot less in interest and hopefully have a real decent amount of equity in the property in 5 years time. By that time we may move again.

Ofcourse, the value of what we buy could go up significantly meaning that the equity loan could ending costing as much as if we had that amount accruing a high APR amount of interest over the 5 years BUT if the value goes up that much, that will be pretty good news anyway!

 

[R.O.S.S.I]

So could someone show me the workings out and a rough idea of mortgage repayments on for example a £160000 house if I had 5% deposit and took the HTB scheme so took the 20% loan.

Just using an average rate of 4% for the mortgage and being over 30 years what would my repayments be in the first 5 years, and then after the 5th year when I have to start repaying the loan back?