Help to buy equity loan

[EvilRob]

but the interest rate is way higher!

Lower interest rate of HTB mortgage is unlikely to be enough to counterbalance increasing property prices (depending on area, of course) and the corresponding amount you'll have to pay back the government for their 20% stake.

Even if you get lucky and it is, I know a few people who have taken HTB equity loans and they are all struggling and failing to pay back the 20% at the 5 year mark, as it's just really difficult to save that kind of money once you have to start forking out your mortgage payment every month. Remortgage is probably the only way.

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..

Possible to work out well but is a gamble. Given the time period HTB has been running as compared to the increasing house prices in the UK, I doubt this would have worked out well for many (again, depending on area). Good for you for remortgaging and to repaying it as quickly as possible - but how much did your property increase in price by during those 3 years?

 

[McDaniel]

The idea behind this is to remortgage or sell within the 5 years, the price going up will put your own equity up as well. You should ideally save over that 5 years to boost your finance for a remortgage, but it's unlikely you'll save the 20% due to the fluctuation.

Well, that's what I plan on doing, sure I could have spent another year saving but with the way house prices are around here I can't save at the same rate! Also in the next 5 years my salary *should* go up enough to give me more borrowing power, and I may even find a partner in that time which will help again. I took the gamble as it enabled me to buy my first home on my own

 

[EvilRob]

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.

Yes, this is the case and highlighted in the example shown in the one page explanation on the HTB website...

https://www.helptobuy.gov.uk/equity-loan/equity-loans/

Not to be harsh but have you not done any research on this yourself? All you'll get here is opinions - some backed up with facts and some based on misunderstandings. You can find all the facts you need to make a decision yourself quite easily.

 

[MBennett]

I was under the impression that the government had withdrawn HTB 2 as of the 1st Jan and this loan is no longer available?

/ignore I just realised the loan is HTB 1

 

[dalehitchy1]

I was under the impression that the government had withdrawn HTB 2 as of the 1st Jan and this loan is no longer available?

i think thats the shared ownership scheme, not the equity loan

 

[dalehitchy1]

Yes, this is the case and highlighted in the example shown in the one page explanation on the HTB website...

https://www.helptobuy.gov.uk/equity-loan/equity-loans/

Not to be harsh but have you not done any research on this yourself? All you'll get here is opinions - some backed up with facts and some based on misunderstandings. You can find all the facts you need to make a decision yourself quite easily.

ive only just started looking into properties and mortgages myself online. Of course im researching, do you expect me to be an expert week 1?

However, I used that website and I did not see anywhere them saying if the house goes up in value so does the 20% repayment. It only mentions that if you come to selling the property the value may be higher.

 

[muon]

I was under the impression that the government had withdrawn HTB 2 as of the 1st Jan and this loan is no longer available?

/ignore I just realised the loan is HTB 1

Yep, it's only the mortgage guarantee scheme which is ending.

It's isn't massively different.

You basically pay interest on a 95% LTV mortgage (so higher costs than an equity loan) but own the entire property.

 

[muon]

ive only just started looking into properties and mortgages myself online. Of course im researching, do you expect me to be an expert week 1?

However, I used that website and I did not see anywhere them saying if the house goes up in value so does the 20% repayment. It only mentions that if you come to selling the property the value may be higher.

Or when paying off the lump sum is my interpretation.

Look at page 19 to see what happens if you don't pay it off that's just interest.

Illustration 3 shows what happens when you start actually paying off the loan. Since you own 80% of the property, you are probably happy if the house price rises though. It would be worse if the price fell.

 

[DJMK4]

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

This is what im doing . Save with a ISA which benifits first time buyers and keep stashing away. Iv seen some friends purchase who I think rushed in too quickly , saving a bit more could have worked out better for them.

 

[coolsurfer]

Don't forget new Lifetime ISA coming in April.

 

[muon]

Don't forget new Lifetime ISA coming in April.

What if house prices rise by more than £1k a year, which is the maximum bonus you can get in any given year.

Lifetime ISAs I think will only be useful for saving for retirement.

http://www.moneysavingexpert.com/savings/lifetime-ISAs

 

[DJMK4]

Don't forget new Lifetime ISA coming in April.

Was going to mention that.

I started help to buy ISA last year. It's not my only saving location as you can only open with 1000 and dump in 200 a month

Your not supposed to open more than one ISA in the same tax year. Does this count if it's a new tax year and you want to open a lifetime ISA aswel

I'm pretty much on target to buy this year but maybe in may onwards so hardly worth me getting it, unless circumstances change, can use it for longer term though

 

[coolsurfer]

What if house prices rise by more than £1k a year, which is the maximum bonus you can get in any given year.

Lifetime ISAs I think will only be useful for saving for retirement.

http://www.moneysavingexpert.com/savings/lifetime-ISAs

I'd say it about developing habits. If you can save 20% all by yourself, then it's likely you'll use these good habits to be able to overpay the mortgage and save multiple £1,000's in mortgage interest.

If on the other hand you take an equity loan, but fail to pay it within the 5 years, you'll end up paying more interest - god forbid prices go up and you want to move too and end up owing more than you thought!

 

[coolsurfer]

Was going to mention that.

I started help to buy ISA last year. It's not my only saving location as you can only open with 1000 and dump in 200 a month

Your not supposed to open more than one ISA in the same tax year. Does this count if it's a new tax year ?

I'm pretty much on target to buy this year but maybe in may onwards so hardly worth me getting it, unless circumstances change, can use it for longer term though

I think you can open multiple ISA's so long as you don't exceed the annual saving limit. I think it's going to be £20,000 in April

 

[muon]

I'd say it about developing habits. If you can save 20% all by yourself, then it's likely you'll use these good habits to be able to overpay the mortgage and save multiple £1,000's in mortgage interest.

If on the other hand you take an equity loan, but fail to pay it within the 5 years, you'll end up paying more interest - god forbid prices go up and you want to move too and end up owing more than you thought!

If you own 80% and prices go up, you benefit more than you lose?

Especially if you are selling and settling the mortgage and loan.

 

[coolsurfer]

If you own 80% and prices go up, you benefit more than you lose?

Especially if you are selling and settling the mortgage and loan.

I agree with you. Need to consider that house prices are relative so if you are buying a bigger one in the same area though will have gone up too resulting in minimal gain if any. In this scenario that fact you still have an equity loan that's appreciated would hurt.

 

[coolsurfer]

As rich dad poor dad says, homes are liabilities. Best to own assets. I am going to pay my mortgage this year and save a deposit for one twice as expensive next year.

I will then rent my existing home and it will cover at least 2/3 mortgage of the new home. Other 1/3 paid by my investment flats rent.

This is the way to do it guys! Expensive liability home paid for by income generating asset homes.

 

[Tefal]

Remenber you have to pay it off in 10% chunks too not judt monthly

 

[Jono8]

Or when paying off the lump sum is my interpretation.

Look at page 19 to see what happens if you don't pay it off that's just interest.

Illustration 3 shows what happens when you start actually paying off the loan. Since you own 80% of the property, you are probably happy if the house price rises though. It would be worse if the price fell.

Why the shock? You just start paying 1.75% interest which then increases with the RPI. Hardly "" worthy and is likely less than a mortgage interest rate. You have to find an extra £59 a month to put on your mortgage. That is hardly that bad when you consider that for most it meant they could get a more expensive house and a better rate due to the better LTV you could get when buying the property.

Yes, if you don't pay it off then the government may make a decent amount if your house value has gone up signifcantly but it means you have technically got 20% of you mortgage interest free for 5 years and then only at a fairly low rate for a while after that and also means you have a better LTV when it comes to the bank so can get a better rate/mortage deal.

 

[muon]

Do you see how fast the interest rate is rising? Keep that 10 years and you'll be desperate to buy the equity asap. So leaving it running isn't an option.