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Is help to buy actually worth it?

I was looking at a help to buy mortgage and after consulting with a mortgage adviser I have realised it's actually going to cost me more than it would without the help to buy.

Does anyone have any experience of help to buy scheme actually working?
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Comments

  • kingstreet
    kingstreet Posts: 38,686
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    Without

    Can buy second-hand
    Struggle to get big enough deposit for a newbuild
    Higher mortgage rates

    With

    Newbuild only
    Lower personal deposit for a newbuild
    Lower mortgage rate
    Increasing payments to make if not repaid by year six
    More to pay back if property value increases
    Less to pay back if property value falls.

    You need to have an exit strategy based on different assumptions, such as property values rise/fall etc and should use some of the money you save from having a lower rate to build up a fund to help clear the equity loan sooner rather than later.
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-to-one-advice, or representation.
  • ReadingTim
    ReadingTim Posts: 3,970
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    Bigrachel wrote: »
    I was looking at a help to buy mortgage and after consulting with a mortgage adviser I have realised it's actually going to cost me more than it would without the help to buy.

    Does anyone have any experience of help to buy scheme actually working?

    I used to work for a housebuilding and contruction company. It seemed to be working for them very nicely. They paid my salary every month, so it worked for me as well. They also paid a healthy dividend, so it worked pretty well for the company's shareholders too. However, I didn't use help to buy, and not many of our shareholders did either. Make of that what you will....
  • clint_S
    clint_S Posts: 366 Forumite
    Help to buy is very good if you can afford to pay it back. It's ££K at around 0% for 5 years, meaning your deposit money can be invested gaining you money. If you stretch and buy the maximum you could afford and are stuck paying the interest payments after year 5 and only pay it back after 25 years when your house would have risen then it's an terrible.


    It is designed as a trap for people who look at what they can get and not at what they can afford. If your sensible it's a great idea and really worth it, if you're not then it's a financial trap.
  • sultanabran
    sultanabran Posts: 172 Forumite
    edited 15 March 2017 at 8:25AM
    clint_S wrote: »
    Help to buy is very good if you can afford to pay it back. It's ££K at around 0% for 5 years, meaning your deposit money can be invested gaining you money. If you stretch and buy the maximum you could afford and are stuck paying the interest payments after year 5 and only pay it back after 25 years when your house would have risen then it's an terrible.


    It is designed as a trap for people who look at what they can get and not at what they can afford. If your sensible it's a great idea and really worth it, if you're not then it's a financial trap.

    It's even better in Scotland where you don't pay interest on it, even after the 5 years.
  • dannyjebb
    dannyjebb Posts: 428
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    The way I see it, you get 20% of your mortgage interest free for 5 years, after that you pay 1.75% as opposed to 2.35% which is the best rate we can get on a mortgage, in the area we are in house prices haven't rose much for the past 6 years or so, when you come to repay you pay 20% of the current value which is fair enough as technicially the govt owns 20% of the house. The real question should be how did a situation ever arise where the average joe spends the majority of their working life to pay for a place to live in!!!!
  • Windofchange
    Windofchange Posts: 1,166
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    I think that outside of London and the S.E then it is perhaps worth looking at. Inside the M25 and down the S.E Kent towns along with pockets of the country, don't touch it. I have friends who have been helped to buy 500k + flats on earnings of around 35k p.a. They are realistically never going to pay it all back without winning the lottery, mum and dad leaving them a big inheritance etc etc.

    At the moment it is all lovey and wonderful - two bed flat, all the mod cons etc etc, but I think they are screwed either way. If prices go up forever more then owning the flat becomes further out of reach. If prices crash then they are stuck with a depreciating asset that I can't see people queuing up to buy. Who wants to buy a quarter of a flat in a falling market...

    Think the answer is going to depend on where, and can you realistically pay the money back. As mentioned above, don't look at what you could have stretching yourself today, look at what you can realistically afford given your current situation.
  • I have wondered about HTB for almost a year now- we are in London so it is 40% that we could borrow as a government loan.

    In the end we decided not to go for it, mainly because it felt like a time bomb.

    The positive aspect was the idea of purchasing a new build property with all the mod cons etc but the final prices released by the developers were eye-watering!

    In excess of 500k for a 2 bed flat and just a few pounds under the limit of 600k for the 3 bed flats.

    I just wondered what happens in 5 years when many owners perhaps might choose to sell up rather than start paying back the government loan. If there is flood of similar properties to the market that will surely affect the prices and also, what scheme will be in place to allow other FTBs to buy flats in excess of 500k?!

    Too many variables for my liking and buying on the open market seems a better option financially.

    One thing as well is that these HTB developments are not necessarily in the exact areas where you want to be living and you are often going to be living in a development with 500 plus apartments...not sure if I want to go back to living a student halls like environment, despite the very nice finishes on the properties.
  • alex_163163
    alex_163163 Posts: 309
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    I guess I feel that HTB has worked for me.
    I live in a town in the midlands and purchased my new build flat 2.5 years ago for £75k asking price.
    I had a larger than 5% deposit (14% to be exact) but couldn't borrow enough on my £16kpa salary at the time to get a mortgage for the rest.
    So I took out a 20% HTB equity loan, meaning my mortgage was for £50k, monthly repayments £197.
    2.5 years later, I have met my boyfriend and we have decided to buy a house together.
    Fortunately the flat has increased in value by £40k, so although I have to pay off more for the 20% HTB loan, I have still ended up with a lot more equity than I started with and can now move up the property ladder to a 3 bed detached house.
    My flat is being bought by another FTB.
    So in all I feel the HTB loan helped me at exactly the right time, and buying my flat with HTB was probably the best decision I've made.
  • Windofchange
    Windofchange Posts: 1,166
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    I guess I feel that HTB has worked for me.
    I live in a town in the midlands and purchased my new build flat 2.5 years ago for £75k asking price.
    I had a larger than 5% deposit (14% to be exact) but couldn't borrow enough on my £16kpa salary at the time to get a mortgage for the rest.
    So I took out a 20% HTB equity loan, meaning my mortgage was for £50k, monthly repayments £197.
    2.5 years later, I have met my boyfriend and we have decided to buy a house together.
    Fortunately the flat has increased in value by £40k, so although I have to pay off more for the 20% HTB loan, I have still ended up with a lot more equity than I started with and can now move up the property ladder to a 3 bed detached house.
    My flat is being bought by another FTB.
    So in all I feel the HTB loan helped me at exactly the right time, and buying my flat with HTB was probably the best decision I've made.

    I think this is the difference Alex. Away from the madness in London / SE then I think you can make a case for HTB working. As you have highlighted, the repayments for you are miniscule. Had you not been moving, you could realistically have hoped to pay off the borrowed amount in full anyway in 25 years.

    Where I think people need their heads examining is down South. I think that help to buy and other associated schemes are the next endowment mortgage type scandal waiting to hit not too far down the line. How many people are going to have paid off a 40% loan from the government before it starts charging interest? 5-600k in London, so that's what, 250k or so. I reckon you can count on the fingers of one hand the people who have access to that sort of money in HTB - if daddy is a millionaire you already have help to buy!

    There is already a glut of these new builds coming online, and yes, I think in a few years time there is going to be a glut of people wanting to sell up. If a recession / crash comes these things are going to sink quicker than the titanic. Who wants to buy a quarter of a depreciating 500k London flat!?
  • There is already a glut of these new builds coming online, and yes, I think in a few years time there is going to be a glut of people wanting to sell up. If a recession / crash comes these things are going to sink quicker than the titanic. Who wants to buy a quarter of a depreciating 500k London flat!?

    Windofchange

    I absolutely agree with you on the above!
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