Home Ownership Schemes

rossk26

rossk26

rossk26

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So after hearing today's budget it got me thinking about when I come to buy my first home.

I'm currently saving up to a target goal of around £20-25k for a deposit.

With the First Buy Equity Loans (FBE) scheme run by the government, they will lend you 20% interest free loan (for 5 years) to help pay towards the deposit. Now my thoughts are, this could really help reduce the amount of mortgage I apply for. For example:

House A costs £150k with a 10% deposit needed of £15k. If I were to go through the FBE scheme I could get an interest free loan of upto £30k? So would I not be better off keeping my own 10% savings of 15k keep it in an ISA for 5 years earning me a nice little sum of money, then when the 5 years are up on the interest free loan pay it off?

My maths are pretty simple but this is how I think it could be done:

House A: £150k
FBE Loan: £30k
5% Cash Deposit: £7.5k
Mortage: £112.5k @ 2.29%* = £496.90 pm

With £15k in a 5 year ISA + £250 added a month @2% Fixed = £36,462

That's £3,212 tax free savings. Then after the 5 years is up pay off the interest free loan without penalty. And I also have a cheaper mortgage rate as well...


If I were to self fund House A:

House A: £150k
15% cash deposit: £22.5k
Mortgage: £127,500 @ 3.19%* = £621.63 pm

So not only would I be £124.73 better off a month on mortgage payments, I will also have earned over £3k in tax free savings!

So...Is this possible?

*figures from moneysupermarket.com
 
Announced in the budget today is a Mortgage guarantee scheme available from 2014 on all homes, old and new.
 
Its funny you posted this because I am looking into similar things.

We have about 11k saved at the moment and I came across a property which has the same kind of "deal".

The property is a new build which requires one of these equity loans which I don't fully understand.

I live life with a simple rule "if it sounds too good to be true it usually is" and with this mentality the above seems to fit that rule.

I will watch this thread with interest as if it helps me understand the FTB situation a bit more I will be thankful.
 
When I looked at it there was only certain mortgages available with these schemes which charged more. It does sound better that it will be possible to use them on non over inflated new builds.
 
Musty Pie said:
Its funny you posted this because I am looking into similar things.

We have about 11k saved at the moment and I came across a property which has the same kind of "deal".

The property is a new build which requires one of these equity loans which I don't fully understand.

I live life with a simple rule "if it sounds too good to be true it usually is" and with this mentality the above seems to fit that rule.

I will watch this thread with interest as if it helps me understand the FTB situation a bit more I will be thankful.
Click to expand...

That's what I am thinking, if this was the case, then why wouldn't everyone apply for the FBE scheme, especially FTB's.

The only thing I have found to be a problem is the availability of houses on the scheme, but as mentioned above, the budget outlined that from 2014 more houses will be added to the scheme, both new and old...

I'm wondering if there is anything wrong with my calculations though first? If not, then it's a case of finding House A on the scheme. Will save £10,500 over a 5 year period, based on reduced mortgage payments and interest earned on savings!
 
Musty Pie said:
I will watch this thread with interest as if it helps me understand the FTB situation a bit more I will be thankful.
Click to expand...
It's fairly simple.

Example below.

First Buy equity loans
Property purchase price: £200,000
Your mortgage and cash deposit: £160,000 (80%)
Equity loan : £40,000 (20%)

If the home sold for £210,000, you’d get £168,000 (80%) and pay back £42,000 on the loan (20%). You’d need to pay off your mortgage with your share of the money.
 
SDK^ said:
It's fairly simple.

Example below.

First Buy equity loans
Property purchase price: £200,000
Your mortgage and cash deposit: £160,000 (80%)
Equity loan : £40,000 (20%)

If the home sold for £210,000, you’d get £168,000 (80%) and pay back £42,000 on the loan (20%). You’d need to pay off your mortgage with your share of the money.
Click to expand...

Yes, there is also the 1.75% fee to pay on the value of the loan after the 5th year is over. The fee will also increase every year too.

With my method of paying off the loan before the 5th year is up, you incur no penalty, so borrow £30k and give back £30k.
 
OK I think its starting to make a bit of sense.

Here is my example:

We have seen a property that is in this "scheme" it is listed as: "Figure shown has a 20% FirstBuy equity loan deducted."

The property cost is £188k. (assuming after the deduction)
and 235,000k before the reduction.

My questions are as follows (and again sorry I am slow I am really new to all of this)

Would the deposit we need be on the 235k figure, or on the figure after the loan has been deducted.

What happens with this "loan" as such. Is this money that the government invest in the property in the hope that when we come to sell it on the value has increased so they make money?

I really dont understand it. (yes I am terrible at maths, figures, and clearly common sense.)
 
The problem will be that 90% of the population won't plan to pay the interest free borrowing back and an 5 yrs it'll all be a surprise when they have to find it and the government backed mortgages have gone.

If you have a brain and discipline it'll work out well.
 
rossk26 said:
Yes, there is also the 1.75% fee to pay on the value of the loan after the 5th year is over. The fee will also increase every year too.

With my method of paying off the loan before the 5th year is up, you incur no penalty, so borrow £30k and give back £30k.
Click to expand...

Nope, they own a % equity in the property.

If you want to clear that equity without selling, or before you sell, it is charged at the current value of the property, not the original sale price.
 
maccapacca said:
The problem will be that 90% of the population won't plan to pay the interest free borrowing back and an 5 yrs it'll all be a surprise when they have to find it and the government backed mortgages have gone.

If you have a brain and discipline it'll work out well.
Click to expand...

Ok I think I have missunderstood something.

This "loan" is money that the government lend you which you need to pay back in 5 years to incur no fee, along side your mortgage (ie pay both at the same time?)

Think my simple brain might pop.
 
Musty Pie said:
OK I think its starting to make a bit of sense.

Here is my example:

We have seen a property that is in this "scheme" it is listed as: "Figure shown has a 20% FirstBuy equity loan deducted."

The property cost is £188k. (assuming after the deduction)
and 235,000k before the reduction.

My questions are as follows (and again sorry I am slow I am really new to all of this)

Would the deposit we need be on the 235k figure, or on the figure after the loan has been deducted.

What happens with this "loan" as such. Is this money that the government invest in the property in the hope that when we come to sell it on the value has increased so they make money?

I really dont understand it. (yes I am terrible at maths, figures, and clearly common sense.)
Click to expand...

The deposit you pay needs to be at least 5% of full value of the property, you are free to pay more if you have it though, just means the equity loan will be less.
 
[TW]Fox;23976596 said:
The 'catch' is that the equity loan scheme only applies to new build properties - not existing properties. The other measure announced today can be used on all properties but it isn't an equity loan.

Have a read of this:

http://www.hm-treasury.gov.uk/d/budget2013_help_to_buy_infographic.pdf
Click to expand...

:)
Fantastic, so annoyed I missed out last time. By the time I had applied the pot of money had gone.
5% brilliant, only want a cheap mortgage anyway.
 
Ok so for clarification:

You get a loan of say 20% of the properties original value which you pay back along side your mortgage repayments? or do you just clear the loan when you come to sell the property? If this is after 5 years you pay the 1.75% charge on the loan monthly until you either clear the loan or sell the house?
 
It's depressing me to see FTBs going for houses at 1/4 of a million pounds. Too many people jumping in with two feet for houses that cost a lot of money.

Not so bad if you are working but please don't forget one day you may be made redundant and in a position where you can't pay your mortgage n it only takes reading the small print wrong for everything to come collapsing down.

Not having a go and certainly not jealous but just think about how much money you're playing with.
 
Musty Pie said:
Ok so for clarification:

You get a loan of say 20% of the properties original value which you pay back along side your mortgage repayments? or do you just clear the loan when you come to sell the property? If this is after 5 years you pay the 1.75% charge on the loan monthly until you either clear the loan or sell the house?
Click to expand...

You don't pay back the loan unless you staircase (buy back some of their equity, at the current house value) or when you sell up.

After 5 years, you start paying interest on the remaining loan.
 
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