Help to buy equity loan

dalehitchy1 · 3 Jan 2017 at 19:40

Has anyone used this?

I'm looking to buy my first home and I have heard mixed things. The way I understand it is the government lend me 20% of the house value as a deposit which I have to pay back within 5 years to be interested free.

After the 5 years it backdates interest starting a 1.6 or something like that and going up every year with inflation.

It only seems like a good deal if you are able to pay the 20% back within 5 years. That to me seems pretty good as its essentially an interests free deal.

VincentHanna · 3 Jan 2017 at 19:53

If you are nigh-on certain you can pay it back within 5 years it's a complete no-brainer.

If not, I wouldn't bother.

Captain · 3 Jan 2017 at 20:02

So you have to pay the 20% back as well as paying your mortgage every month? Isn't that going to push you to the limit of what you can spend?

dalehitchy1 · 3 Jan 2017 at 20:26

Clov!s said:
So you have to pay the 20% back as well as paying your mortgage every month? Isn't that going to push you to the limit of what you can spend?

You don't pay anything for 5 years.... you have your mortgage to pay monthly as usual... but the equity loan you pay nothing for 5 years. At the end of the 5 years you pay it all or begin to pay in monthly installments.

If you can pay it in 5 years.... to me it would seem like an interest free loan

Captain · 3 Jan 2017 at 20:29

Ah that sounds pretty good, what do you need to qualify?

scottomus0 · 3 Jan 2017 at 20:31

^^ but you still will need to put the money away to save for the lump sum at the end of the 5 years, so technically paying both mortgage and loan

Semple · 3 Jan 2017 at 20:31

What are the interest rates like compared to a generic mortgage? I'm going to guess they're not as good.

Me and the misses have been saving for our first home and have a nice sizeable deposit - looking around 80% LTV. However if the rates are very similar to a HTB equity loan, then it would make sense to take out what is potentially an interest free loan, earn interest on current savings, until eventually we pay it all off.

Tefal · 3 Jan 2017 at 20:33

dalehitchy1 said:
Has anyone used this?

I'm looking to buy my first home and I have heard mixed things. The way I understand it is the government lend me 20% of the house value as a deposit which I have to pay back within 5 years to be interested free.

After the 5 years it backdates interest starting a 1.6 or something like that and going up every year with inflation.

It only seems like a good deal if you are able to pay the 20% back within 5 years. That to me seems pretty good as its essentially an interests free deal.

One crucial thing to remember.

They own that 20% of the house, so when you come to pay back the 20% it will be 20% of whatever the house is worth then. Not when it was bought

Tefal · 3 Jan 2017 at 20:34

dalehitchy1 said:
You don't pay anything for 5 years.... you have your mortgage to pay monthly as usual... but the equity loan you pay nothing for 5 years. At the end of the 5 years you pay it all or begin to pay in monthly installments.

If you can pay it in 5 years.... to me it would seem like an interest free loan

How many houses do you know that remain the sameprice for 5 years?

Swifty55 · 3 Jan 2017 at 20:39

I would just save for a deposit, rather than help to buy.

rG-tom · 3 Jan 2017 at 20:43

Tefal said:
How many houses do you know that remain the sameprice for 5 years?

Exactly this.

Taking the flat I live in. Purchased in 2013 for £151k and there was an option then for a 5 year interest free 20% equity loan (or similar at least). Now, if that option had been chosen, the government would have given £30.2k towards the property. Happy days.

Fast forward to now, 3.5 years later and still 1.5 years to run of the interest free period, the flat has been valued at, and the one below it has sold for, £250k. This means that the government's share would now be £50k...£19,800 more than they lent and there would only be 1.5 years left to find this money before paying stupid interest rates and in all likelihood with the market in this part of Manchester City Centre that £250k will be even higher by then...

Of course in this instance the property could be de-equitised but to borrow £30.2k for 3.5 years would've cost £19,800...this is equivalent to a 33.2% APR interest rate....

Uther · 3 Jan 2017 at 20:56

Tefal said:
One crucial thing to remember.

They own that 20% of the house, so when you come to pay back the 20% it will be 20% of whatever the house is worth then. Not when it was bought

Ouch! Wonder how many people get into trouble after the five years...

EvilRob · 3 Jan 2017 at 21:07

Worth explicitly stating as I didn't see anyone mention it - help to buy equity loans only apply to new builds, which typically sell for a premium anyway.

95% mortgages are becoming more mainstream now and indeed that's the reason the government gave for ending help to buy mortgage guarantees last week.

I'd go down the 95% LTV traditional mortgage route if finding the deposit is an issue.

dalehitchy1 · 3 Jan 2017 at 21:16

rG-tom said:
Exactly this.

Taking the flat I live in. Purchased in 2013 for £151k and there was an option then for a 5 year interest free 20% equity loan (or similar at least). Now, if that option had been chosen, the government would have given £30.2k towards the property. Happy days.

Fast forward to now, 3.5 years later and still 1.5 years to run of the interest free period, the flat has been valued at, and the one below it has sold for, £250k. This means that the government's share would now be £50k...£19,800 more than they lent and there would only be 1.5 years left to find this money before paying stupid interest rates and in all likelihood with the market in this part of Manchester City Centre that £250k will be even higher by then...

Of course in this instance the property could be de-equitised but to borrow £30.2k for 3.5 years would've cost £19,800...this is equivalent to a 33.2% APR interest rate....

Is this the case? This was not mentioned and I am glad I asked.

So if the property went up in value which is likely to do so, then I would be owing them a whole lot more.

Swifty55 · 3 Jan 2017 at 21:20

dalehitchy1 said:
Is this the case? This was not mentioned and I am glad I asked.

So if the property went up in value which is likely to do so, then I would be owing them a whole lot more.

They own 20% of the house.

So they get 20% of what the house is worth.

Kol · 3 Jan 2017 at 21:22

EvilRob said:
Worth explicitly stating as I didn't see anyone mention it - help to buy equity loans only apply to new builds, which typically sell for a premium anyway.

95% mortgages are becoming more mainstream now and indeed that's the reason the government gave for ending help to buy mortgage guarantees last week.

I'd go down the 95% LTV traditional mortgage route if finding the deposit is an issue.

but the interest rate is way higher!

rah^ · 3 Jan 2017 at 21:33

The main point is getting the lower rate and overpaying the mortgage to year 5 before the equity loan payments kick in

The equity loan payments aswell are purely the interest so are quite low and in theory you could just leave it until the mortgage is paid before sorting it

On the flip side we are just about to remortgage at year 3 of ours costing £20 a month more after we remortgage so..

Mucky_Pup · 3 Jan 2017 at 21:35

We've taken one out for the house we'be just moved in to, plan is to pay back at least 10% of the value of the house at the end of the 5 years, and maybe absorb the rest back into a remortgage if possible, if not run it for a few more years before paying it off.

skyripper · 3 Jan 2017 at 21:48

dalehitchy1 said:
Is this the case? This was not mentioned and I am glad I asked.

So if the property went up in value which is likely to do so, then I would be owing them a whole lot more.

Surely at that point you remortgage (you've already made 5 yrs of repayments on your mortgage), your loan-to-value will be lower, so you will find a much better interest rate.

Ace Modder · 3 Jan 2017 at 21:49

Well what I did was buy a house without the buy to let scheme.

I put down 5% deposit last December on my first house. Been overpaying for the first 12 months and now with a minor value increase I now have a 13% equity in the property.

Hopefully by the time my 2 year fixed rate is up next December I will be at 20% so I can remortgage and get a better APR because its at 3.79% atm.