PLEASE READ BEFORE POSTING
Hello Forumites! In order to help keep the Forum a useful, safe and friendly place for our users, discussions around non-MoneySaving matters are not permitted per the Forum rules. While we understand that mentioning house prices may sometimes be relevant to a user's specific MoneySaving situation, we ask that you please avoid veering into broad, general debates about the market, the economy and politics, as these can unfortunately lead to abusive or hateful behaviour. Threads that are found to have derailed into wider discussions may be removed. Users who repeatedly disregard this may have their Forum account banned. Please also avoid posting personally identifiable information, including links to your own online property listing which may reveal your address. Thank you for your understanding.Help to Buy equity loan London - The right approach ?
jaymerchi
Posts: 9 Forumite
Hi all
Firstly many thanks to everyone on this forum. It has been an immense source of knowledge and inspiration to me over the last 5 years. I havent posted much but have been a frequent "lurker".
I have recently thought about buying a house using the London HTB equity loan scheme to primarily take advantage of the 5 year interest free period on the 40 % equity loan. The maths I have done work out as follows below. Please let me know if there is something off with my calculations or some major factor that I am missing.
Current rent £2000 pm (£24000 py)
New house price : £600k
Deposit : £30
Mortgage : £330k
At 2 % rate of interest 5 year fixed (barclays HTB 5 year) yearly interest cost ~ £6600
Annual maintenance cost and ground rent ~ £2400
Total annual costs £9000. (Anything above is equity repayment which I dont count as a "cost". I know this number declines over the 5 years as I pay down debt but lets just take the worst case. )
Stamp duty : £20k
Other moving costs : £5k (including fees etc plus initial basic furnishings)
Total upfront payment (SDLT + other costs) : £25k (deposit is not a "cost")
Annual savings for 5 years : (£24k - £9k)*5 = £75k
Net saving = £50k
Exposure to housing = £360k (60 % of property value as government owns 40 %)
At the end of 5 years I would look to sell no matter what as the government fee would become due and buy something larger and more family appropriate - So long as house prices don't fall by more than 13.9 % (50k / 360k) I think I end up fine.
Note that I have no estimates for council tax / bills etc here as they would be broadly identical for both my rental and purchased property.
It is worth mentioning that the area of purchase is slightly cheaper than where i currently rent - I could rent there for ~1700 per month so using that number instead of current rent, the savings drop to £32k and the property price cushion to ~ 8.9 % (32k/360k)
1. Is this a fair assessment ?
2. What do people think the "premium" on HTB eligible homes are. For example, the wider affordability does mean that the houses are likely slightly overpriced. What do you think that "premium" is ? There is evidently no way of knowing this but it would be good to know from anyone who has had some experience in the program or has an understanding or insight into the property market.
Thanks a lot for all your help ! :j
Firstly many thanks to everyone on this forum. It has been an immense source of knowledge and inspiration to me over the last 5 years. I havent posted much but have been a frequent "lurker".
I have recently thought about buying a house using the London HTB equity loan scheme to primarily take advantage of the 5 year interest free period on the 40 % equity loan. The maths I have done work out as follows below. Please let me know if there is something off with my calculations or some major factor that I am missing.
Current rent £2000 pm (£24000 py)
New house price : £600k
Deposit : £30
Mortgage : £330k
At 2 % rate of interest 5 year fixed (barclays HTB 5 year) yearly interest cost ~ £6600
Annual maintenance cost and ground rent ~ £2400
Total annual costs £9000. (Anything above is equity repayment which I dont count as a "cost". I know this number declines over the 5 years as I pay down debt but lets just take the worst case. )
Stamp duty : £20k
Other moving costs : £5k (including fees etc plus initial basic furnishings)
Total upfront payment (SDLT + other costs) : £25k (deposit is not a "cost")
Annual savings for 5 years : (£24k - £9k)*5 = £75k
Net saving = £50k
Exposure to housing = £360k (60 % of property value as government owns 40 %)
At the end of 5 years I would look to sell no matter what as the government fee would become due and buy something larger and more family appropriate - So long as house prices don't fall by more than 13.9 % (50k / 360k) I think I end up fine.
Note that I have no estimates for council tax / bills etc here as they would be broadly identical for both my rental and purchased property.
It is worth mentioning that the area of purchase is slightly cheaper than where i currently rent - I could rent there for ~1700 per month so using that number instead of current rent, the savings drop to £32k and the property price cushion to ~ 8.9 % (32k/360k)
1. Is this a fair assessment ?
2. What do people think the "premium" on HTB eligible homes are. For example, the wider affordability does mean that the houses are likely slightly overpriced. What do you think that "premium" is ? There is evidently no way of knowing this but it would be good to know from anyone who has had some experience in the program or has an understanding or insight into the property market.
Thanks a lot for all your help ! :j
0
Comments
-
I have never liked Help to Buy, just a scheme toinflate house prices for the Tory builder donors. The London 40% equity loan makes it sound even more crazy especially when you consider the lack of pay rises the last 10 years.
I really can't understand why you are paying Ground rent and maintance for a house, seems a rip off. You expect it for flats but £2,400 for a year for a house is as dodgyas hell.
You say you are going to sell in 5 years time, can you tell me when you expect London house prices to stop falling? Financial Times today says Fulham house prices have already fallen 20%.:exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.
Save our Savers
0 -
I am not taking a view on house prices. I am just asking whether the logic underpinning my calculation framework is correct. If the logic is ok, I can then begin to think more closely about pricing. By my calculations, I end up better off so long as house prices dont fall by more than 13.9 %.0
-
I am not taking a view on house prices. I am just asking whether the logic underpinning my calculation framework is correct. If the logic is ok, I can then begin to think more closely about pricing. By my calculations, I end up better off so long as house prices dont fall by more than 13.9 %.
So you did take a view on house prices? You are being too conservative by far in how far London will drop IMO.0 -
Crashy_Time wrote: »So you did take a view on house prices? You are being too conservative by far in how far London will drop IMO.
Yeah but you havent bought for years waiting for the crash.... Given the increase in house prices in that time you are desperate to try to convince everyone the 50%+ price drops are coming... Wont happen, you gambled and lost...0 -
Yeah but you havent bought for years waiting for the crash.... Given the increase in house prices in that time you are desperate to try to convince everyone the 50%+ price drops are coming... Wont happen, you gambled and lost...
Bet you said that about Trump and Brexit as well...? Don`t underestimate how peed off a large number of people now are with the housing Ponzi, they might just do something "crazy" like elect Corbyn
If the system hadn`t been bailed out like it was there probably wouldn`t have been Trump or Brexit, now the only outcome left is a big correction to property prices. 0 -
Interesting thread. Shame its being derailed.
Buying in a similar position to yourself. London HTB on a house at 600k. Im not necessarily definately looking at selling in 5 years though.
Is your property cushion based on you breaking even if you were to sell as planned? Bare in mind selling costs and the fact you will have to sell at the HTB valuation.
I think using HTB is certainly a risk given that its a new build with a premium but it also allows improved affordability and reduced upfront costs to home ownership which is the big advantage to us.0 -
Crashy_Time wrote: »Bet you said that about Trump and Brexit as well...? Don`t underestimate how peed off a large number of people now are with the housing Ponzi, they might just do something "crazy" like elect Corbyn If the system hadn`t been bailed out like it was there probably wouldn`t have been Trump or Brexit, now the only outcome left is a big correction to property prices.
You've obviously chosen to not read the post and make arbitrary assumptions about my political inclinations. My question was simply whether the calculations make sense or not. I know that the cushion is large and that is the point ! I think HTB makes ownership extremely attractive given the large cushion.0 -
Yeah but you havent bought for years waiting for the crash.... Given the increase in house prices in that time you are desperate to try to convince everyone the 50%+ price drops are coming... Wont happen, you gambled and lost...
Incorrect - I am under 30 atm and have rented for a total of 5 years. Only really had a cushion for a deposit since early 2017
Really dont understand why the mere mention of a fall in house prices in a scenario analysis exercise riles people up like this.0 -
The post you are quoting wasn't aimed at you. It was aimed at someone who has been foretelling a house price crash for years.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.0
-
Interesting thread. Shame its being derailed.
Buying in a similar position to yourself. London HTB on a house at 600k. Im not necessarily definately looking at selling in 5 years though.
Is your property cushion based on you breaking even if you were to sell as planned? Bare in mind selling costs and the fact you will have to sell at the HTB valuation.
I think using HTB is certainly a risk given that its a new build with a premium but it also allows improved affordability and reduced upfront costs to home ownership which is the big advantage to us.
Good points
I havent factored in selling costs. But the maths remains attractive even if you throw in 7k there.
The premium is a big dilemma. Surely HTB inflates entry prices given the wider affordability such that theoretically, the day after a property is purchased and the owner moves in, the house's lack of HTB eligibility should imply some decline in value. Add to that the newbuild premium which is independent and I wouldnt be surprised if the total is in the double digits (%) over 5 years.0
This discussion has been closed.
Categories
- All Categories
- 343.2K Banking & Borrowing
- 250.1K Reduce Debt & Boost Income
- 449.7K Spending & Discounts
- 235.3K Work, Benefits & Business
- 608K Mortgages, Homes & Bills
- 173.1K Life & Family
- 247.9K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards