Help2Buy judgement day thread

[krooton]

That may well be the case, but there has to be what I suppose those fat-cats would probably consider "necessary side effects" that make the scheme attractive to both banks and first-time buyers or nobody would use it

Well, as long as house prices rise, a few people over-extending and defaulting is gravy for the banks, as the houses they repossess make them decent profit. The people that don't default either keep money flowing with the interest payments, or larger injections when staircasing. The banks win in pretty much any situation as long as house prices don't crash, which the scheme staves off by giving buyers more fake buying power.

All this without having to sort out the wages vs house price rises issue.

 

[Richie]

This is why I prefer the Scottish HTB over the E&W HTB schemes.... The Scottish one is similar with the exceptions being:

• You only have to repay the Government loan if you sell your home/die
• You can "tranche up" i.e. buy a portion at a time back (I think its 10% bits at a time)
• There is no interest on the Government loan.
• You pay back what you borrowed plus the increase in house value e.g.:
  
  • House is £200,000
  • Gov't Put in £20,000 (10%)
    
    
  • House now worth £250,000
  • Govt' now owed £25,000 (10%) (if value drops, so does Gov't side)

Much better.

 

[uncle_rufus]

This is why I prefer the Scottish HTB over the E&W HTB schemes.... The Scottish one is similar with the exceptions being:

• You only have to repay the Government loan if you sell your home/die
• You can "tranche up" i.e. buy a portion at a time back (I think its 10% bits at a time)
• There is no interest on the Government loan.
• You pay back what you borrowed plus the increase in house value e.g.:
  
  • House is £200,000
  • Gov't Put in £20,000 (10%)
    
    
  • House now worth £250,000
  • Govt' now owed £25,000 (10%) (if value drops, so does Gov't side)

Much better.

All improvements, particularly the no-interest and the ability to buy it back in smaller increments (assuming you mean 10% of the loan not the house value.... if we could buy back 10% for ~£6k I think we'd do it right away!)... the last point though does work the same (you pay what you borrow less/plus the same proportion of the change in value of the house)

 

[krooton]

All improvements, particularly the no-interest and the ability to buy it back in smaller increments (assuming you mean 10% of the loan not the house value.... if we could buy back 10% for ~£6k I think we'd do it right away!)... the last point though does work the same (you pay what you borrow less/plus the same proportion of the change in value of the house)

Looks like you can buy in 5% chunks, but still based on current value, not original equity loan.

Increasing your equity
Although you'll own at least 85% of your home's equity when you first buy it using the Help to Buy scheme, you can repay the Scottish Government to increase your share.

If you want to increase your share, you have to do this by at least 5% each time.

You will be able to increase your share all the way up to 100%, meaning the Scottish Government no longer has a share in your home and will not be due any money if you decide to sell it.

If you want to buy a bigger share of your home, you will have to pay all the valuation and legal costs as well as the administrative costs of the organisation that will handle your request.

 

[Psycho Sonny]

Hey all,

The help2buy scheme was introduced just over 5 years ago now so people are increasingly going to be hitting the end of the 5 year interest-free period on the equity loan. My wife and I are going to hit this point later in the year and since I can't find a dedicated thread for it I thought why not get one started!

Disclaimer - this isn't financial advice! More my own thinking out loud hoping that between us we can work things out together

So one obvious option would be to re-mortgage to borrow more and pay off the loan, but here's my thinking on that... using an equity loan of £60k (which I think is close to what mine is worth now) the interest/fee on the loan will be as follows (and please correct me if I'm wrong)... I'll use the current RPI figure of 3.2% for this though that will change over the years, so pinch of salt n' all that:

Year 6 - 1.75% of the £60k, which works out £87.50 pcm (or £1050 total)

Then each year that rate goes up by RPI + 1% (so 4.2% of the 1.75%)

Year 7 - 1.82% or £91.18 pcm (£1092 total)
Year 8 - 1.90% or £95.00 pcm (£1140 total)
Year 9 - 1.98% or £98.99 pcm (£1188 total)
Year 10 - 2.06% or £103.15 pcm (£1236 total)

... and so on; creeping up a bit each year. So the two factors to consider whether or not it's worthwhile to remortgage instead are:

1. How much would that extra 20% equity on the mortgage cost me per month and how would it change the rate I can get?
2. What affect will house prices changing have?

You can get an idea of the first point - for example with my own mortgage I used a calculator on Nationwide's site and it tells me the cost of pulling the whole 20% into my mortgage would probably cost about £260 pcm extra for the 25 years I have remaining (at a similar rate to what I already am on), which initially seems like a bad deal compared to the figures above.... but of course the difference is that I'd actually be paying it off instead of just paying the fee, but paying back more in the end... this all gets a bit confusing...

As a rough estimate if you gloss over the fact that the payments aren't equal like this then in my example you could think of it as paying off 1/25 of the equity loan as part of the mortgage each year meaning you're clearing the equivalent of ~£2400 per year (but paying more than that, at £260 pcm that's £3120 per year - it is a loan after all!) to eventually pay £78000 for the £60000 loan across those 25 years... So in a way it's sort of like the interest/cost of each year (though again it isn't spread equally I know) is sort of like 3120 - 2400 or £720 per year... and when you put it that way it starts to seem like re-mortgaging to eat up the equity loan isn't such a bad idea...

When time allows I'll try and calculate the above more correctly as the way the repayments are skewed probably makes it less of a "saving" than it appears above, but if anybody has already done this feel free to post your results!

As for the house prices and rates that's a lot more up in the air... if the prices go up then you've gained if you re-mortgaged and will lose out if you didn't... if they go down then the opposite. Since nobody really knows maybe it's best to try and work out the best course assuming prices stay about the same - I'm not sure!

Anyway enough rambling from me... who else is thinking about this and what horrendous mistakes have I made above?

you need to take that £10K savings and overpay your mortgage

then remortgage for the extra £50K.

any future savings - overpay the mortgage instead.

interest on savings is less then mortgage interest in most cases.

it can also be unlocked by going on a mortgage payment holiday.

 

[TripleT]

Yer the obvious thing with HTB is to overpay in the initial 5years making the remortgage easier.

You're getting a lower rate of interest due to the combined 25% deposit so pay the extra each month.

That's what I'm doing, plus I put down 7% in the first place too. I'm aiming to remortgage and be under 80% LTV too. (Only a year in)

 

[Spammeh]

@Op
I've been on (and ditched) the HTB side of things as soon as I could, for a couple of reasons

1. With the HTB side of your mortgage still against you, it seriously limits the number of mortgages available to you, believe me - I checked. Essentially meaning you are going to lend at a higher interest rate than a 'normal' mortgage.
2. Your house could go up in value hugely (who knows?) which means that £60k could become £70k?
3. The RPI figure could change - have a look at its history further causing you problems.

When we went through the process, 2 years into the 5yr HTB loan (we lent £42k), we already were up to £50k and likewise hadn't saved much, however we HAD overpaid significantly, so when we got the RIBA accredited valuation, the gentleman kindly went on a lower valuation (within reason) which kept the balanced owed good for us.

Since it was then a 'traditional' mortgage, we were able to get a <2% interest mortgage and overpay significantly, as we're much more comfortable without it hanging over our head, i.e. we're not bothered about the house valuation (brexit anyone?) and the retail price index.

 

[uncle_rufus]

Mmm yeah the more I read this thread and think about it the more I think working towards re-mortgaging to get rid of the loan is the right way to go... Will have to think about whether it makes sense to cut from our fixed deal early to do this or whether it makes more sense to wait out the remaining 2 years first...

I think using some of our savings to overpay, and just generally trying to start overpaying is a good idea too... clearly we could just dump all our savings in right away but I think I'd prefer to hold at least a little of those back for other investments and things that might outpace simply shoving it onto the mortgage though...

@Op
I've been on (and ditched) the HTB side of things as soon as I could, for a couple of reasons

1. With the HTB side of your mortgage still against you, it seriously limits the number of mortgages available to you, believe me - I checked. Essentially meaning you are going to lend at a higher interest rate than a 'normal' mortgage.
2. Your house could go up in value hugely (who knows?) which means that £60k could become £70k?
3. The RPI figure could change - have a look at its history further causing you problems.

When we went through the process, 2 years into the 5yr HTB loan (we lent £42k), we already were up to £50k and likewise hadn't saved much, however we HAD overpaid significantly, so when we got the RIBA accredited valuation, the gentleman kindly went on a lower valuation (within reason) which kept the balanced owed good for us.

Since it was then a 'traditional' mortgage, we were able to get a <2% interest mortgage and overpay significantly, as we're much more comfortable without it hanging over our head, i.e. we're not bothered about the house valuation (brexit anyone?) and the retail price index.

All convincing arguments definitely... the valuation is a good point - can you get the house valued by any approved person/body? If you got multiple quotes could you go with the lowest one or would the bank insist on the highest? My gut reaction was "isn't that fraud?!" but house valuation seems fairly subjective so a lower valuation is probably not too hard to justify

 

[Psycho Sonny]

so people have taken loans of £60K with no plan to pay them back? when it comes to the end of the 5 year interest free period they now want to put a plan into action?

surprised they didn't go for an interest only mortgage too.

 

[uncle_rufus]

so people have taken loans of £60K with no plan to pay them back? when it comes to the end of the 5 year interest free period they now want to put a plan into action?

surprised they didn't go for an interest only mortgage too.

I'll try to ignore the passive aggressive "you're a moron" nature of the response ... Obviously we knew we'd have to pay it back eventually but the proposition wasn't so much "ooo free money" as it was the choice between at least getting onto the property ladder and having some of our ~£800 a month going towards equity versus all of it going into a landlord's pocket... There was never any possibility we'd be able to save up £60k in 5 years as we'd barely been able to save up the £12k for the deposit in the 3-4 years before going in on the deal (and even then a good chunk of it came via some inheritance).. we have saved what we could in that time but it's not enough

On paper it really turns out to be taking a £180k mortgage + a £60k loan rather than taking out a £240k mortgage, and now that we're 5 years in we can consolidate those into a £220k mortgage and hopefully have avoided sitting on an awful 95% LTV rate... doesn't seem stupid to me; I think without the scheme we'd probably still be renting now with a meagre amount more savings

 

[Mercenary Keyboard Warrior]

I'll try to ignore the passive aggressive "you're a moron" nature of the response ... Obviously we knew we'd have to pay it back eventually but the proposition wasn't so much "ooo free money" as it was the choice between at least getting onto the property ladder and having some of our ~£800 a month going towards equity versus all of it going into a landlord's pocket... There was never any possibility we'd be able to save up £60k in 5 years as we'd barely been able to save up the £12k for the deposit in the 3-4 years before going in on the deal (and even then a good chunk of it came via some inheritance).. we have saved what we could in that time but it's not enough

On paper it really turns out to be taking a £180k mortgage + a £60k loan rather than taking out a £240k mortgage, and now that we're 5 years in we can consolidate those into a £220k mortgage and hopefully have avoided sitting on an awful 95% LTV rate... doesn't seem stupid to me; I think without the scheme we'd probably still be renting now with a meagre amount more savings

Which is exactly the point of the scheme.
People were being asked for excessive deposits who could afford the repayments, they just couldn't within a sensible timescale save the deposit.
Obviously saving is particularly hard if your paying rent.

It clearly makes sense to combine into one mortgage at some point. Just run the options each time you would realistically be able to remortgage and see what you throw up.

The only consideration I would make, and this is down to personal risk.

If you combine and get a decent fix, how long depends on your personal appetite for risk vs certainty, then if you have brought in the HTB loan you know your outgoings.
There remains some risk with the loan in that whilst its currently affordable it could go up a fair bit if inflation spiked and who knows how the market will go in regards mortgages again should there be some sort of recession issue post Brexit.

This morning they said average house prices had risen 0.5%, but that it varied a lot regionally. The prediction was more of the same for 2019, and again probably a fall in London. There does seem to do some market correction taking place, albeit slowly.

 

[Slam62]

Basically it's allowing people to buy houses they can't afford, meanwhile the financial services industry creams what they can.

Housing in this country is such a scam.

 

[Skillmister]

so people have taken loans of £60K with no plan to pay them back?

Legitimately yes. Based on my fairly small sample size I would say the majority either have not thought about how they will pay it back or their circumstances will not have changed sufficiently to enable them to pay it back. They certainly won't (in most cases) be using the extra money they have saved from only needing to take out a 75% mortgage for the first 5 years on savings or overpayments. It will be more like oh look extra money to furnish our nice new 4 bed house with shiny new things. I think it's a total shambles.

Hell I even had one person who didn't know they had to ever pay it back!!

 

[Skillmister]

as it was the choice between at least getting onto the property ladder and having some of our ~£800 a month going towards equity versus all of it going into a landlord's pocket... s

In reality they weren't your only two options though were they? It was having some of our £800 a month go towards equity on a brand new expensive house, versus some of our £800 a month go towards equity on a not so shiny cheaper house that might need some redecoration, versus all of it going in a landlord's pocket.

 

[HangTime]

The thing is the rates are still fairly cheap even after 5 years; 1.75% plus small increments with no arrangement fees probably compares OK with the sort of (initial period) mortgages people with massive LTVs can get anyway, or indeed personal loans, car finance etc. Based on the example in the OP and current RPI it doesn't even breach the 2% barrier until 5 years later. So keeping the money rather than paying it back may actually (depending on what happens with interest rates) be more effective than taking on extra debt elsewhere. No point paying back that cheap govt loan if you then need to fork out 4.9%+ to get your beamer on the drive innit.

Edit: Clearly, there will come a point where the rate increases to an unsustainably high level due to compound interest, but that's probably quite a way off unless RPI goes through the roof.

I'll be honest, I had misinterpreted the HTB scheme, originally I had thought after five years the rates were much higher i.e. the RPI was applied to the borrowed amount not just to the interest amount, so when this was announced I had assumed you'd really want to pay it all off after 5 years, now I am less convinced. Of course, it isn't quite that straightforward because retaining HTB restricts the mortgages you can get, so all needs weighing up.

 

[Steedie]

I paid mine off 2 years after buying the house when it came to remortgaging. Just wanted it out the way and I had the means to do so, so just cleared it and got it out the way, which helped with getting a better rate. Plus, I'm hoping that with all the investment in the area that my house will be worth a fair bit more than what I paid for it, so didn't want to leave it too long in case I was paying back a lot more than I originally borrowed. I know a couple of people on my road who used the scheme and are already living month to month, dread to think what they intend to do with interest rates going up and no plan to remortgage before the interest payments on the loan start

I can't moan at the scheme as I used it, but I do think it's extremely dangerous. Especially as it came at a time of extremely low interest rates. People buying houses and maxing out their outgoings with no thought to interest rates going up etc. Can see a lot of repossessions or people being in a lot of trouble in a couple of years

 

[Skillmister]

The thing is the rates are still fairly cheap even after 5 years; 1.75% plus small increments with no arrangement fees probably compares OK with the sort of mortgages people with massive LTVs can get anyway, or indeed personal loans, car finance etc. Based on the example in the OP and current RPI it doesn't even breach the 2% barrier until 5 years later. So keeping the money rather than paying it back may actually (depending on what happens with interest rates) be more effective than taking on extra debt elsewhere. No point paying back that cheap govt loan if you then need to fork out 4.9%+ to get your beamer on the drive innit.

Which is all fine when you are sensible enough to look at it that way. In the same way I've got my a year's spending on house renovations plus new bike, phone etc on 0% CC's with an almost (soon to be) equal amount in savings. But most people aren't capable of dealing with things in this way and will instead spend the cash and the debt just stays if not builds.

Most younger people who buy a house (again, massive generalisation and lack of sampling etc) live pretty much paycheck to paycheck apart from deposit savings, if not entirely given how prevalent gifted deposits are. I'd say between 50-75% of first time buyers including those using HTB have a gifted deposit.

I was doing some sums the other day and based on expected pay rises and income from a lodger, if I put all that towards overpayments which I could because it would be surplus cash, I could be mortgage-free by the end of the 9th year of my 30 year mortgage. No doubt my friends and colleagues who have paid 2.5x as much for a house thanks to being able to use HTB will be a couple of years into their next 30 (if not 40!) year re-mortgage having consolidated their HTB loan scary thought

 

[Psycho Sonny]

so essentially it's allowing people to spend more on homes that they cannot really afford. when it comes to paying it back it means re-mortgaging with the hope it hasn't increased too much so you don't need to pay back more and then increasing your mortgage length to compensate for this extra £60K that is now being tacked on.

so essentially the banks win, landlords win because people spending more on houses = prices keep on going up. the buyers themselves are losers but they are made to think they are winners because they got such a fancy house with little money up front.

 

[Steedie]

so essentially it's allowing people to spend more on homes that they cannot really afford. when it comes to paying it back it means re-mortgaging with the hope it hasn't increased too much so you don't need to pay back more and then increasing your mortgage length to compensate for this extra £60K that is now being tacked on.

so essentially the banks win, landlords win because people spending more on houses = prices keep on going up. the buyers themselves are losers but they are made to think they are winners because they got such a fancy house with little money up front.

You didn't think the government did it to be genuinely helpful, did you?

 

[HangTime]

People like to use soundbites such as "houses they cannot really afford" but really what we are saying is "could not afford if this scheme wasn't in place". The fact is the scheme is in place, so it is affordable, because it's a very cheap source of finance.
Personally, I would definitely get rid of such schemes, as it maintains pressure on house prices. If we stopped the cheap finance, then demand [at a given price] would drop, prices would drop, and housing would get more affordable.

Similar with the talk of needing to build more 'affordable housing' - my view is we just need to build more housing full stop and then the natural equilibrium will shift making property more affordable. Build loads of nice houses and nice houses will get cheaper.

Ultimately - and I realise this may come across as vaguely elitist - it is right and proper that some people should not be able to afford to buy a house, if they are towards the bottom of the wealth pile. Yes they need options for housing but that doesn't mean that every tom dick and harry working in a basic job should be on the ladder in their 20s. The same as how people on middle incomes should not be able to afford the luxury pads in the best locations. Expectations are very high, people like to look at the olden days of cheap housing but when you dig beneath the surface actually home ownership wasn't that high, young people still spent all their money etc. My parents bought a good house at what is now a very cheap price (perhaps around 8% of current value) but even so my dad told me they didn't have a lot of money to throw around.