Help To Buy Equity Loan Property Extension

moneytorques · 16 August 2017 at 7:24PM

I think I've been duped into something I'm not supposed to have even considered or will be permitted to do.

Ive taken out the Help to Buy Equity Loan of 20% on a New Build after selling my house of £370k which we had a fair amount of equity approx. 60%, this would have facilitated a purchase with a mortgage top up from our current lender without Help to Buy but we would have been cash poor.

What we have done (not exchanged yet as new build not completed/off plan reservation £385) is take a New Mortgage of £190k (H2B product) and taken the help to buy loan £78k which will give us a large amount of cash equity in the bank <£100k, we wanted to immediately spend this on extending the property to increase its Value and livability for us as it wasn't an upgrade on our living status other than being brand new.

The IFA is aware of this and never stated anything to the contrary regarding the H2B loan not being for this purpose, it is not means tested!

Only now can I see that permission would be required to do any work to the property and it is not generally permitted as it increases the Loan size proportionally as the Property valve increases (we already knew this part)

Now we are going to end up with the cash in the bank/ unable to do the work and a home not fit for purpose for 5 years, anyone have any suggestions on this one much appreciated!

MT.

Lilla_D · 17 August 2017 at 10:27AM

There's a question in the FAQs on the Help to Buy page (https://www.helptobuy.gov.uk/equity-loan/faq/) about extending the home, which basically says that you wouldn't normally get permission to do significant works to the property.

Based on what you're saying above and what the reality of the situation is, it seems that you didn't get suitable advice and now heading towards something that you should avoid. Maybe it's time to face it and withdraw from the purchase taking the hit of reservation fee, valuation fee, search fees, as it's still a way smaller hit than buying something that you'll be stuck with and is no good for you.

You could also make a complaint to the brokerage about the unsuitability of the advice and the arrangement and get your money back or even claim compensation for the costs incurred.

By the sound of things, it's time to swallow any pride and get out before it's too late. If you haven't exchanged yet (as you mention it above), then cancelling the purchase and the mortgage application only takes an email to the broker and another to your solicitor. Then you may get calls as well, but consider your family's disappointment in a house not fit for purpose and a large financial commitment vs a few days of headache and a few thousand pounds loss at max.

getmore4less · 17 August 2017 at 11:21AM

Makes it a very expensive extension when you have to pay for part of it twice, unless really lucky and it add no value to the place.

kingstreet · 17 August 2017 at 12:40PM

It's amazing the number of brokers who claim newbuild isn't a specialist sector that they can/should be able to handle such cases and then demonstrate absolutely zero knowledge about one of its biggest features...

The number of times we get people on the phone who have spoken to other brokers who have told them they can afford a purchase and when we ask about the HTB affordability calculator the other broker has done nothing but a quick lender affordability check, didn't include the cost of the equity loan and ignored any ground rent & service charges.

The potential purchasers then get the huff with us because we tell them their proposition isn't affordable and won't be accepted by the HTB Agent.

Lilla_D · 17 August 2017 at 1:00PM

I know what you mean - I find the same with shared ownership as well, where the specialist calculator is often ignored and the housing association's advisor tells the client that they could have less than what they were told by the original broker.

kingstreet · 17 August 2017 at 1:15PM

Lilla_D wrote: »

I know what you mean - I find the same with shared ownership as well, where the specialist calculator is often ignored and the housing association's advisor tells the client that they could have less than what they were told by the original broker.

Yep. Same as.

We're on the Orbit panel and get shared ownership and shared equity business, so we regularly use both HCA calculators.

moneytorques · 18 August 2017 at 8:25AM

Thanks for the replies, they make sense.
My wife and I know we could comfortably live in the property for 5 years as it is, its a 3 bedroom, we will have our 2nd child in October, so enough space for the timebeing. It is lovely
The town is undergoing a huge redevelopment and the general consensus is that the House Prices will surge once the development is completed, addtionally the estate being built is ongoing for the next 4 years so we might even be able to consider selling back to the builder and upgrading.
The cash in the bank could be invested elsewhere if not being put to use.

Does anyone know what would actually be done to physically prohibit us doing any works to the property?

silvercar · 18 August 2017 at 8:53AM

Does anyone know what would actually be done to physically prohibit us doing any works to the property?

The maths won't work. Property value 385k= mortgage 190k, HTB loan 78k, equity 117k. (HTB=20%).

If you then spend say 60k of your own money, without any agreement that you are personally funding the extension, the loan is still 20% of the property value. So if your £60k spend adds 60k to the value of the property, you still have to give 20% of the new value as the HTB loan replacement. So the 385k becomes 445k and you have to pay back the HTB loan of 89k. So by not declaring the extension and getting agreement/ revalues etc it has cost you 11k.

Given that most people hope that adding an extension adds more value than it costs the figures get worse ie it costs you more. If the extension added 80k to the property value you now have a 20% loan at 93k. Whereas declaring it and having an allowance given that the loan only represents say 15% of the now extended house, keeps the loan in the right proportion. Basically your extension costs that you have funded rightly belong in the "equity" split of the house costs, by not declaring it they move to be proportionally split across the equity/ loan divide.

Lilla_D · 18 August 2017 at 9:54AM

moneytorques wrote: »

Does anyone know what would actually be done to physically prohibit us doing any works to the property?

When you come to selling, a few things will happen:
- you will have to fill out a property questionnaire, which will ask if you've done any works to the property - what are you going to say, "no"?
- an estate agent will advertise your property with description and photos. Are you going to ask them not to mention that you have an extra bedroom/bathroom/conservatory etc.?
- a valuation will be done by the buyer, where the number and type of rooms will be noted
- the buyer's solicitor will do a local authority search, which would reveal any planning permissions
- when you sell, chances are that the estate agent and/or the valuer would have visited other similar properties on the estate, so they would notice that your property had work done to it and wouldn't keep this info to themselves

In other words, if you don't get planning permission for the works (dependent on what you're doing) and you don't declare it to the Help to Buy agent, i.e. trying to hide what you're doing, the truth will more than likely come out when you're selling and then you'll have to face the consequences. Do you really need it at that point?

kingstreet · 18 August 2017 at 10:37AM

You also have to have a valuation by an RICS surveyor for the HTB redemption;-

http://www.myfirsthome.org.uk/iwantto/redeem/

Once you have received an offer on your property that you wish to accept, you will need to have the property valued by an independent surveyor. This valuation is used to calculate the amount required to repay (redeem) your loan. It is your responsibility to pay for the valuation.

moneytorques · 18 August 2017 at 11:27AM

"Whereas declaring it and having an allowance given that the loan only represents say 15% of the now extended house"

So are we saying that if I notify them of the works they may when the house comes to be Sold remove the additional Value of the Works from the property Valuation if they have agreed as such?

Help To Buy Equity Loan Property Extension

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