Help-to-buy scheme phase 2

uncle_rufus · 7 Oct 2013 at 14:54

Hey all,

Perhaps my searching skills are weak but I couldn't find a thread about this so here it is... Anybody looking at this scheme which launched today (well, the signing-up part at least)? I'm trying to make sense of the many, many opinions people have about it...

I get that it's potentially quite dangerous... interest rates can only really go up from here which could be a problem as far as payments are concerned, and also the value of the houses etc...

I definitely like the fact that this 2nd phase you don't end up with a mortgage and a ridiculous £40k - £50k equity loan... just the mortgage

Our situation is a couple earning about £45k between us, clean credit-history and I believe when we've looked into it before the bank/s seem to be happy to lend us of the order of £180k - £200k with a deposit between 5% and 10%... We have probably enough of a deposit for 5% just about once all the other costs of buying a house are taken from our savings...

My feeling is that if we could take advantage of this scheme but aim for a house which is big-enough that we won't be forced to move again in the future (when we have kids - planning to have 2 over the next I dunno, 10 years or so :rolleyes:

), then we can eliminate any worries about the value of the house - who cares if the prices rise/fall if you're not planning to sell?

So what are other people thinking? Hoping for a good discussion here to make sense of it all... Is the plan above completely ridiculous?

uncle_rufus · 7 Oct 2013 at 15:00

I think you have to phone or go into the bank (and supposedly certain banks have extended hours this week for the massive crushing stampede of rampant buyers - Daily Mail)... You should be able to find the news story about the announcement if you Google...

The actual date of the money being released is still Jan 2014

uncle_rufus · 7 Oct 2013 at 18:26

The equity loan version has been running for a while now but we were put off by the fact that you end up with a massive loan as well as the mortgage, and it's unlikely you'd be able to pay much of that loan off in the 5-years it's interest free for... Just another monthly outgoing eating up your disposable income and making it even less likely that you'd be able to survive any rise in interest rates on the mortgage...

The idea was that because the equity loan is effectively a 75% mortgage not 95% then the rate and monthly payments would be much cheaper to offset having the loan, but when we spoke to financial advisers and banks about it the amount we'd likely have to pay each month wasn't that much better for being on the better rate anyway

uncle_rufus · 8 Oct 2013 at 08:55

Glaucus said:
The existing ones, only been for new builds.
As for paying it off it depends if you mortgage yourself upto the eyballs or not.

Well of course, but I'd still far rather not have a massive additional loan on top of the mortgage payments - which is what this 2nd phase of the scheme is offering...

Edit: What I mean is under the 1st part of the scheme say on a typical £200k property you'll have your £10k deposit (5%) and an equity loan of £40k (20%) interest free for 5 years... To pay it off before the interest kicks in you'd need to find an extra ~£666 (the mortgage of the beast!!!) a month on top of your mortgage payments (which I believe worked out something just shy of £1,000 a month)... If you can afford that every month on top of all your bills & food plus a bit of security for interest rate rises and having any kind of quality of life with what's left over then you're easily in a position to save a bigger deposit anyway - surely? Well that was my reasoning at least

uncle_rufus · 8 Oct 2013 at 09:28

meandu229 said:
I thought the general idea was to re-mortgage and take the extra 40k into your mortgage after 5 years as by then you would be in a better place to get a mortgage (hopefully)

I did wonder about this, so you mean you would just pay off whatever of the equity loan you could in the 5 years (perhaps none of it) and then absorb it into the mortgage... I guess my concern there would be what guarantee would you have that the bank would be willing to let you do that? Wouldn't they rather keep you locked into the additional loan as they start to charge you for it knowing full-well that you won't be in a position to easily repay it?

uncle_rufus · 8 Oct 2013 at 09:47

krooton said:
The interest rate of the equity loan after 5 years will still be MUCH lower than your base mortgage rate for many years though, the RPI + 1% increase is not a flat add to the initial 1.75%.

If the RPI is 4%, the overall interest rate increases BY 5%, so 1.75% becomes 1.84%.

As such, the scheme is better suited to FTB looking to sell up after a number of years, not for your forever-home.

Makes sense, cheers... but what about the 2nd phase of the scheme? (5% deposit, 95% mortgage, government guarantees 15% to the lender in the event of defaulting to reduce their risk)

uncle_rufus · 8 Oct 2013 at 10:36

covenantuk said:
Help to Buy second phase only makes sense if you don't have the money for a deposit. The higher interest rate charged by the lender on the mortgage to cover the guarantee premium charged by the government will more than offset the government subsidy.

Simply put it's not a way to get a cheap mortgage, it's a way to get a mortgage if you haven't got enough deposit.

This sounds in line with my thinking... I think given that we already pay £825 a month in rent and could justify a fair bit more than that for mortgage payments without stretching ourselves, and still accounting for some rise in rates before we were in serious trouble (I think)... Surely this would be enough to pay mortgage payments with? We just don't have a massive deposit (perhaps £12k after other costs associated with moving)

uncle_rufus · 8 Oct 2013 at 10:51

krooton said:
Totally depends on the size of the mortgage.

To rent a 1-bed flat in my area = £850 pcm
Mortgage of £100k to buy £150k flat using Homebuy = £580 pcm

Round here a 1-bed flat is far less than that :eek:

... our £825 pcm is for a 3-bed terraced house... I would think we might be looking for a mortgage of around £180k - £200k

uncle_rufus · 8 Oct 2013 at 12:19

SMN said:
Am i right in thinking that if a person can afford the 'massive deposit', then a standard mortgage instead of a help-to-buy one is better?

Pretty sure... the whole point is that the banks don't want to risk very high LTV mortgages like 95% because they would loose out on so much money if the borrower defaults... so if the govt. (taxpayer) are prepared to cover an additional 15% of their losses should that happen it makes it less of a risk for the lender. If you have a bigger deposit % in the first place then it's not an issue as far as I can tell

Freakbro said:
The fee for the 15% Guarantee is up to 0.9% of the sale value, which would be £1,800 on a £200,000 mortgage.

So yes, if you can afford to just get a deposit yourself, it would be much better.

Also, this scheme is for properties new and old up to a value of £600,000 ... err, if you are looking to buy a £600,000 house, I'm not sure you should be needing Govt support....

Heh, it's just crazy now that we all bandy figures around about mortgages for £150 - £200,000 like it's nothing, looking back 15 years one of the houses near me sold for £19,000 - sure they are just 2 bed starter homes, but even they are now nearing £100k today....crazy

The fee is paid by the lender though not the borrower isn't it? So I don't think that's an issue... I agree about the amounts and it's all well and good saying they will come down eventually and it needs to happen etc. and we're all silly for trying to jump on this false market... but like buying PC components (bonus points for off-topic forum theme reference

) if you keep waiting for the next advancement in tech you'll end up with nothing... It gets to a point where it feels like not being able to get a house (if that's what you want to do) is in the way of everything - don't want to spend a lot on a wedding because it'd have to come out of the house fund, difficult to justify having kids because you want to get into a house first as you won't be able to afford to save as much once you're supporting a kid, and so on...

uncle_rufus · 9 Oct 2013 at 16:18

Glaucus said:
Natwest have some info up on their site now

http://www.natwest.com/personal/mortgages/help-to-buy.ashx

Yeah I see... I'm a bit undecided still to be honest... Yes it is a mortgage but it's still 95% LTV and therefore a terrible rate with massive monthly payments (and that's even if the interest rates don't rise)