Help to Buy scheme

[ubern00b]

Can anyone explain the Help to Buy scheme to me? I feel like all the websites I have read have not explained it as well as they could have or I am just not understanding it from their explanation.

So you get an equity loan from the government. It doesn't have to be the full 20% but the minimum a lender will accept is 10% (this I found out whilst talking to a mortgage adviser, mortgage adviser turned out not be very attentive and answered questions he felt like so didn't bother pursuing it with him).

This means that the government "owns" a 10% stake in the price of your house. When it comes to paying off the loan you need to get a valuation done and then pay the difference in equity.

So the 5 year interest free period is all well and good but you could still end up owing a large chunk of money if the market booms. What if it retards? I assume you just pay the loan amount then?

What do people usually do to pay this off? Do they save as much as they can during the interest free period and then re-mortgage to release equity and then hope this all covers the loan amount?

Any help to understand all of this is appreciated

 

[Syla5]

You are spot on in what you are saying, you pay back 10%. If the market booms you pay effectively more, if it declines, you pay less.

Generally speaking everyone is different, best advise out there is budget to overpay your mortgage but don't, put it in to savings and pay off as much of the equity loan as early as you can. I don't think you have to wait 5 years but I could be wrong. Paying back the equity loan directly will be the best use of your money as a 5% increase in the market is going to be a higher effective interest then your mortgage.

 

[Skillmister]

You can pay it off any time but has to be in minimum 10% chunks (or at least the Wales one does) and cannot leave less than 5% outstanding so in your instance you would have to repay all or nothing.

I've dealt with a lot of these and I have to say after seeing the figures I would not use it myself. I think a lot of people are going to get caught short in 5 years time.

 

[ubern00b]

Woah. I just researched that. Don't think I want to use it now but certainly can't afford to get onto the housing ladder without it. It's not really a HELP to buy scheme is it Well, I guess it is. They help you to buy it not to pay any of it back.

 

[Skillmister]

Helps people get into houses they can't afford! Most of the people I've dealt with have been buying houses quite a bit more expensive than my first so their deposits haven't been far away from mine despite putting down nearer 5% than 10%. In my mind if couples can afford to buy for the best part of £200k with HTB they could afford just over £100k without, even if they had to save a few more months. But they wouldn't get a nice shiny home without putting in some graft like I have would they

 

[Daaaavvveee]

I have used it twice now.
Sold the first place after 2 years, it was valued and sold for 21k more than I purchased it for.
Paid back the 20% and walked away with a nice profit.
I don't really see any disadvantages to it really? You get 20% interest free and get to keep money in the bank for the rainy day.

In our latest situation, we put in 10% and had the Gov's 20% also.

 

[Psycho Sonny]

I have used it twice now.
Sold the first place after 2 years, it was valued and sold for 21k more than I purchased it for.
Paid back the 20% and walked away with a nice profit.
I don't really see any disadvantages to it really? You get 20% interest free and get to keep money in the bank for the rainy day.

In our latest situation, we put in 10% and had the Gov's 20% also.

is it not for first time buyers only?

 

[Glaucus]

Woah. I just researched that. Don't think I want to use it now but certainly can't afford to get onto the housing ladder without it. It's not really a HELP to buy scheme is it Well, I guess it is. They help you to buy it not to pay any of it back.

dont be scared of it, just make sure you can afford it, that means putting money aside every month to pay for it in 5 years, taking into account house price rises.
yes if people dont plan and just ignore it, then it might become an issue for them, just don't be one of them.

its either that or keep wasting money on rent, whilst houses prices continue to rise and you are in even worse position.

I'm in the middle of buying share ownership. I've worked out if houses prices rise 6% a year for the 5 years I have the fixed mortgage from I need a minimum of £200 a month savings, which I can afford. That way when I remortgage I'll buy the rest of the house and will have a minimum (unless market crashes then that changes everything) of 10% deposit and likely more, as house prices should have raised the part I own will have equity on it.

its also pointless paying it off in chunks, as it costs fees to pay it off. Unless you haven't saved the money by the end of the 5 year interest free period.

if its a flat and thus leasehold, also be aware and plan how you are going to get the money to extend the lease when it gets down to around 85 years left.

is it not for first time buyers only?

not the equity loan, other help to buy schemes like shared ownership are. But does have to be new build.

 

[Skillmister]

is it not for first time buyers only?

No, but you can't own 2 properties at the same time

 

[dhokes]

Pretty much spot on. I'm in the middle of buying a house using the scheme so if you have any specific questions, fire away.

 

[Richie]

The Scottish HTB scheme seems better... It works in a similar way with regards to price of the house increasing and they get more money back BUT its interest free forever and you only need to pay it back if you sell.

You can still buy chunks back.

 

[Kemik]

Think of it as the Government buying the house with you. If you buy a £200,000 house, they own 10% so they contribute £20,000. When you decide to sell the house they get 10% of the proceeds. I.e. if the price went up to £220,000, they would get £22,000 back. If it goes down to £180,000, they would get £18,000 back. This scheme is often called Help to Buy Equity scheme because the amount is tied to the equity they own in the house.

The cost of them buying the house with you is:

• After five years you pay them interest on the amount they contributed. This can ratchet up quite quickly so most people will either remortgage and buy out the HTB share (your mortgage will have fallen by five years time remember), move, or simply repay it in full with savings. You must repay the full 10% at once. You can't repay less.
• You pay legal fees involved when you buy back their share and any valuation fees they require.
• You have to go with specialist mortgages which tend to have slightly higher interest rates. They are usually lower than 95% mortgages though.

The benefit is you get a house for a smaller deposit or a bigger house than planned.

 

[Dan103]

Ours is due in 2 years time. We have saved and will continue to save till is due and then pay in full rather than re mortgage. Fingers crossed anyway

 

[Rusko187]

We've just recently moved from a house which had HTB, to be fair it got us on the ladder and we were fortunate for our house to turn profit. We did have to pay a little more due to house value but found the guy who did the valuation was decent and gave a valuation matching our sale value. The danger lies whereby if you accept at a lesser value and they value the house higher (we thought this would happen to us as we Part Ex'd).

 

[kinobestew123]

Ours is due in 2 years time. We have saved and will continue to save till is due and then pay in full rather than re mortgage. Fingers crossed anyway

I reckon you're in a minority there. From what I've seen, people get in the HTB scheme and then don't do any saving or even think about what they're going to do when it comes up for repayment.

 

[M1k3H]

I reckon you're in a minority there. From what I've seen, people get in the HTB scheme and then don't do any saving or even think about what they're going to do when it comes up for repayment.

But that's fine. I know some people who have said they'll just keep paying the interest of the HTB until they sell the house and pay back the money. The interest is lower than the mortgage rate (at least in the beginning) so should not be much problem.

 

[ubern00b]

Well, we have decided to go down the HTB route anyway. We tried to wangle personal loans for the deposit deficit as Santander do allow this and that way we would be paying back a set amount with no equity stake but it didn't work out. At least we tried.

So what is the process with HTB then? Can anyone explain? Tomorrow we are reserving the house and paying £500 to the developer. Then what?

 

[Dan103]

I reckon you're in a minority there. From what I've seen, people get in the HTB scheme and then don't do any saving or even think about what they're going to do when it comes up for repayment.

We decided from the start to scrimp for 5 years to buy out the equity as the interest staircases and rates increase each year. I dont want to be paying interest if we dont have to. If our house price has increased to what is currently on the market we will be around maybe 2-3k short at the end of saving which i will hopefully be able to borrow from our parents and pay them back. if we really cut back we may be able to pay the full amount due but we need to enjoy ourselves sometimes otherwise its a very long 5 years.

 

[ubern00b]

We decided from the start to scrimp for 5 years to buy out the equity as the interest staircases and rates increase each year. I dont want to be paying interest if we dont have to. If our house price has increased to what is currently on the market we will be around maybe 2-3k short at the end of saving which i will hopefully be able to borrow from our parents and pay them back. if we really cut back we may be able to pay the full amount due but we need to enjoy ourselves sometimes otherwise its a very long 5 years.

This is what we are going to do, we need to look at some figures but we are pretty set on only borrowing 10% from HTB as, depending on the mortgage rate we get back, we will be in a far better position to pay it off cash after the 5 year period or at the very least only be a couple of grand deficit as opposed to tens of grands.

 

[Dan103]

This is what we are going to do, we need to look at some figures but we are pretty set on only borrowing 10% from HTB as, depending on the mortgage rate we get back, we will be in a far better position to pay it off cash after the 5 year period or at the very least only be a couple of grand deficit as opposed to tens of grands.

Ours was 5% deposit 20% HTB and 75% Mortgage. By only needing 5% deposit we already had some money spare to get the ball rolling. If you plan to stay then i think its the only way to go.

If you know you aren't going to stay there then I suppose people must just sell up and cover it that way