Help to buy scheme - anyone involved?

Big Chris · 7 Dec 2016 at 22:02

I'm trying to get my head around the figures...

"The loan is interest free for the first five years. From year six a fee of 1.75% is payable on the equity loan, which rises annually by RPI inflation plus 1%."

My tiny brain is struggling to work out how years 7, 8, 9... are calculated.

Is it:
Year 7 = 1.75% + (RPI +1%)
Year 8 = whatever you paid in Year 7 + (RPI +1%)
Year 9 = whatever you paid in Year 8 + (RPI +1%)

If that's the case and they keep adding RPI+1% each year then you'd be paying a hefty sum in the latter part of the 25 year term? Over 20% if I'm understanding it correctly.

One More Solo · 7 Dec 2016 at 22:08

I think the idea is to build up your equity over the first five years (ideally) and then remortgage for the full value of the house and pay off the equity loan.

This explains the fee though:

You will not be charged loan fees for the first five years of owning your home, but, in the 6th year, you will be charged a fee of 1.75% of the loan’s value. After this, the fee will increase every year in line with inflation. The annual increase in the fees is worked out by using the Retail Prices Index (RPI) plus 1%.

For instance, if the RPI is 5% at the end of Year 6 of your Equity Loan, the fee will increase by 6% from 1.75% in Year 6 to 1.86% in Year 7 (which is 1.75% + (1.75% x 6%) = 1.86%).

Big Chris · 7 Dec 2016 at 22:22

Right, that makes more sense, cheers. I thought they were adding RPI +1% to the 1.75% every year, meaning it would be into the tens of % pretty quickly. Glad I was wrong!

So it's likely to go up by 0.0x% every year from year 7. Does the increase apply to the previous year's figure? e.g. if year 7 is 1.86% in your example, year 8 would be 1.86% + the new rise?

In terms of building up equity in the first five years, basically chuck whatever you can into an ISA or similar?

Twinblade · 8 Dec 2016 at 08:57

If/when you go through the process you will be given by your local HTB provider a personalised breakdown for how much you pay after the initial 5-years and how this is worked out.

In terms of saving to clear it, we split the amount borrowed over 5-years and saved that amount equally each month so that we the term ends we should be there or there abouts with clearing it, or we can remortgage to cover the shortfall.

Rifte · 8 Dec 2016 at 09:26

One More Solo said:
I think the idea is to build up your equity over the first five years (ideally) and then remortgage for the full value of the house and pay off the equity loan.

Yes I understood this as the general principle as well, because AFAIK you can only pay the governmental loan back in one or two sums.

I always thought it was dangerous as hell. The whole principle of the scheme bubbles house prices for FTBers, one pop and with the equity gone an individual could be left with an expensive mortgage on an overpriced house with a loan which slowly creeps up.

Phoenix211 · 8 Dec 2016 at 13:52

the way they get you is the interest free bit. It's not if your house goes up by 10% as that adds 10% onto the value you owe the gov (ok so technically its interest free but you get the idea). Best to try pay it off by using equity gained in the house value when you remortgage (that's if your in an area with increasing house prices)

a1ex2001 · 8 Dec 2016 at 15:06

Rifte said:
I always thought it was dangerous as hell. The whole principle of the scheme bubbles house prices for FTBers, one pop and with the equity gone an individual could be left with an expensive mortgage on an overpriced house with a loan which slowly creeps up.

It's a terrible idea and does nothing to improve the state of the housing market or cool down the rapidly inflating bubble house prices are going crazy again at the minute and the help t buy scheme is just more fuel on the fire.

M1k3H · 8 Dec 2016 at 16:44

Help to buy is a good scheme in my opinion.

It enabled me to get a mortgaged that I can easily afford the monthly repayments for, in a much shorter time. If I would have saved the whole deposit it would take me 4 years, whereas it took me 10 months. In 4 years however, the house prices would be such that I would need to save for at least another year, if not two.

The interest rate is calculated (at year 7) as 1.75% * 1.01 (where RPI = 1%) = 1.77%.
For year 8 it would be 1.77% * 1.02 (where RPI = 2%) = 1.80%, and so on.

Apart from that, you pay £1 a month for the life of the loan.

Glaucus · 8 Dec 2016 at 17:08

there's different schemes, imo the 5% deposit with a normal mortgage is the better way.
there's also the isa as well, to give free money.

M1k3H said:
It enabled me to get a mortgaged that I can easily afford the monthly repayments for, i

its a terriable scheme, it forces prices up which means you need such schemes in the first place, however government isn't going to lower market value of houses and is going to keep help to buy schemes in place so you have to use such schemes.

Mucky_Pup · 8 Dec 2016 at 17:09

I'm using it for the house I'm getting next week. The plan is to save as much as we can for 5 years, and use that to pay back as much as possible with that, the rest try and absorb it into our remortgage.

Big Chris · 8 Dec 2016 at 18:50

The paying the loan back in two bits bit is correct from what I understand, you can only pay it back in two equal halves or one big lump.

I get the bit about paying back 20% of the value of the house if/when you come to sell it - regardless of if the house has gone up or down in value. I'm still not sure if you still own the house at the end of the 25 years, you then have to pay them back 20% of the house value or just the original loan amount though?

Mucky_Pup · 9 Dec 2016 at 10:32

Big Chris said:
I'm still not sure if you still own the house at the end of the 25 years, you then have to pay them back 20% of the house value or just the original loan amount though?

At any point it's always the percentage you borrowed, that you pay back based on the value of your house at the time of payback.

Big Chris · 10 Dec 2016 at 12:16

Hmmmm... it could end up costing quite a bit more than we borrow then. The house we're looking at would need an £84k Gov backed loan so we'd need to save a hell of a lot to pay it off before it got ridiculous.

Mucky_Pup · 10 Dec 2016 at 12:25

If you run it for the duration of the mortage or 25 years it's going to cost a lot more than it's worth, that's why you should be saving money to pay it back or getting it tied up into your mortgage once your fixed period is up or once you've got enough equity built up in the house. We're "only" borrowing £50k, so saving at least 10% of the value of the house in 5 years is entirely possible for us, so that will come off, then hopefully can get a decent remortgage to take care of the other 10%, either that or save up for another 5 years after that.

Martini1991 · 10 Dec 2016 at 12:28

The help to buy can be a trap IMO.

In our case I expect our house to have lost value within the first 5 years, which if that's the case we'll pay off half of the loan, and then pay off the remainder in the next 5 years.

If house prices have gone up, we'd have to evaluate our options, but then we'd probably sell and buy elsewhere off the scheme.

Big Chris · 10 Dec 2016 at 12:39

We'd be looking to save as much as possible in order to pay it off as we go along, but as you can only do it in one or two chunks, I can't see how we'd find £40k+ that quickly.

How does remortgaging to cover the loan work then? I've only ever rented so it's a bit of a mystery to me.

Martini1991 · 10 Dec 2016 at 12:43

You'd only be able to remortgage if there's enough equity in the house to cover it surely?

This is all new to me, I just know that the advice is always remortgage and absorb the HTB.

But I live in the North East, I already think our house is overpriced at 100K (2 Bedroom Terrace new build. 75K gets you a 3 bed semi), there's no way in hell I believe that we'll be able to remortgage to absorb it, so the idea is to pay it off or sell. But for us it's currently 20K.

Big Chris · 10 Dec 2016 at 15:00

Not really sure how it works. Perhaps if in 5 years you're earning sufficiently to get a mortgage that covers the remaining balance plus the HTB loan, then you can pay off the government?

rexehuk · 10 Dec 2016 at 15:12

Big Chris said:
Not really sure how it works. Perhaps if in 5 years you're earning sufficiently to get a mortgage that covers the remaining balance plus the HTB loan, then you can pay off the government?

I've recently gone through all this, we never bothered in the end and just got a nice 1.89% mortgage.

In essence, if you borrow the equity loan, you can pay it back in 5 years and get 0% interest. So you'd want to focus on paying off that first.. otherwise you end up with mortgage and extra bit popped on for paying back parliament to keep Boris in power.

Edit: Video for OP might help you out - https://www.youtube.com/watch?v=6zNyWe7Ie38

ChrisD. · 20 Dec 2016 at 15:55

Having used the H2B scheme to buy my house 2 years ago I would personally say it is a good scheme. However there are many, many drawbacks that people need to be aware off.

What you owe the government goes up... and down.
There are a finite number of lenders who will provide a mortgage when it comes to remortaging which means generally higher than average interest rates.
The legal process or remortgaging is a pain for solicitors and free legals that are offered at remortgage time are having major issues.
When you come to pay the loan off or part of it, the process is a bit drawn out and involves fees.

Also, the value of the house going up has helped me out, because I also now own more equity in my own home. I am remortaging shortly and using equity to pay the loan off and end up around 81% LTV... which is good considering it's a 2 year old house. H2B enabled me to buy when I could, had it not existed, 6 months ago I would have still been renting and I would only just be moving into a house I would want. H2B gave me that stepping stone but you must read up on everything before committing. I cannot wait till the loan is gone and I have a conventional mortgage.