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    • croto
    • By croto 12th Jun 17, 12:37 AM
    • 38Posts
    • 9Thanks
    croto
    Thinking of buying a flat - Help-to-buy equity loan
    • #1
    • 12th Jun 17, 12:37 AM
    Thinking of buying a flat - Help-to-buy equity loan 12th Jun 17 at 12:37 AM
    Hi everyone,
    renting in London is mad, horrible landlords and prices increase every year. For that reason I've been thinking about buying a flat for quite a while now. I've viewed a 1 bed flat on Saturday and immediately fell in love, spacious, bright, new build with windows in all rooms (pretty rare on new-builds).
    The flat costs £350k, I have not enough money to pay a full 10% deposit, so I was thinking on getting into the Help-to-buy London scheme, where you pay 5% deposit and get a mortgage on 60% of the remaining, plus the government lends you 40% of the rest 5 years interest free. It sounds like a great deal, since I pay £1000 rent/month and my landlord already said he will increase to £1100 by the end of the year. Any flats around me are being rented out for at least £1200.
    I get £37k a year and my wife another £17k. We will buy it together. I have access to about £26k in savings, of course would like to NOT spend all of it and keep about £2k for emergencies.

    Is anyone on the help-to-buy equity loan scheme and would like to give any recommendations? Is it as a good deal as it sounds?

    The flat is seriously perfect, my wife and I really loved it. Am I being impulsive?

    Cheers,
    croto
Page 1
    • alex_163163
    • By alex_163163 12th Jun 17, 10:01 AM
    • 143 Posts
    • 93 Thanks
    alex_163163
    • #2
    • 12th Jun 17, 10:01 AM
    • #2
    • 12th Jun 17, 10:01 AM
    So I used the HTB equity loan scheme, but outside London so figures were much lower! I've just sold my property and moved up the ladder so here are some things I would consider now having been through the whole process:

    You don't have to take the full 40% if you don't need to. As in, if you can afford a larger mortgage then you can take 35% equity loan say. I'd say take the minimum equity loan you can.
    Also, do you plan on staying longer than the first 5 years when you don't pay the interest on the equity loan? You need to work out whether: a) can you afford the interest payments starting in year 6 on top of the mortgage? B) Or can you over pay the mortgage in the 5 years to add on the HTB loan onto the mortgage at the end of year 5?
    Also if you do redeem the HTB equity loan at any point, you pay back 40% of the value AT THAT TIME, not just the amount you originally took out. E.g. You sell in 5 years for £400k, you pay back £160k not the £140k you took out.
    Also, when you fully repay, partially staircase, remortgage etc, there are fees payable to the HTB company to be allowed to do this. Check out myfirsthome.org for more info on fees and the processes involved.

    Also, from looking at you figures and available deposit, it doesn't look like you have enough yet to be able to give 5% deposit and pay stamp duty, solicitors fees etc. Stamp duty on a £350k purchase will be £7500 I think? Plus £1500-2000 for legal fees.
    • kingstreet
    • By kingstreet 12th Jun 17, 11:23 AM
    • 31,566 Posts
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    kingstreet
    • #3
    • 12th Jun 17, 11:23 AM
    • #3
    • 12th Jun 17, 11:23 AM
    Get someone, preferably an experienced newbuild broker to do the affordability for you.

    You need to satisfy lender and Government calculators and in the lender's case, 3% of the equity loan will be a cost against your mortgage affordability. Both will take into account ground rent & service charges in addition to the cost of credit commitments etc.
    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.
    • croto
    • By croto 12th Jun 17, 1:44 PM
    • 38 Posts
    • 9 Thanks
    croto
    • #4
    • 12th Jun 17, 1:44 PM
    • #4
    • 12th Jun 17, 1:44 PM
    Thanks @alex_163163 for your input.

    Does anyone knows if there is a possibility to add the stamp duty and fees to your mortgage? I was told by the state agency that is not possible, but my friend who just recently bought a flat says he did it.
    • kingstreet
    • By kingstreet 12th Jun 17, 1:47 PM
    • 31,566 Posts
    • 16,860 Thanks
    kingstreet
    • #5
    • 12th Jun 17, 1:47 PM
    • #5
    • 12th Jun 17, 1:47 PM
    If your deposit is more than 5% you simply use some of that and reduce your deposit.

    Otherwise, no, you can't add stamp duty to the loan.

    A product fee might be addable. You need to establish this with your lender/broker.
    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.
    • csgohan4
    • By csgohan4 12th Jun 17, 2:39 PM
    • 3,566 Posts
    • 2,239 Thanks
    csgohan4
    • #6
    • 12th Jun 17, 2:39 PM
    • #6
    • 12th Jun 17, 2:39 PM
    if you have to think about adding stamp duty and fees to your mortgage, consider are you ready to buy? Do some figures and see if you can afford to buy and pay the mortgage e.t.c
    "It is prudent when shopping for something important, not to limit yourself to Pound land"
    • ReadingTim
    • By ReadingTim 12th Jun 17, 3:15 PM
    • 1,679 Posts
    • 2,429 Thanks
    ReadingTim
    • #7
    • 12th Jun 17, 3:15 PM
    • #7
    • 12th Jun 17, 3:15 PM
    The flat is seriously perfect, my wife and I really loved it. Am I being impulsive?
    Originally posted by croto
    A 1-bed flat may be perfect now, but will be less so if you're thinking of having children at any point in the future. Selling the place may be more difficult too, as 1-beds are really only suitable for single people and childless couples.

    I would suggest you should be looking at 2 beds as a minimum if you're looking to get tied into property ownership. This may mean London becomes unaffordable.

    So, in the sense you don't seem to have thought through the implications of a 1-bed place, then yes, I think you are being a little impulsive. Widen the net a little, even outwith the M25, see what your money gets, then look again at how "seriously perfect" this newbuild is. Or isn't.
    • SeagullFTB
    • By SeagullFTB 12th Jun 17, 3:24 PM
    • 36 Posts
    • 17 Thanks
    SeagullFTB
    • #8
    • 12th Jun 17, 3:24 PM
    • #8
    • 12th Jun 17, 3:24 PM
    A 1-bed flat may be perfect now, but will be less so if you're thinking of having children at any point in the future. Selling the place may be more difficult too, as 1-beds are really only suitable for single people and childless couples.

    I would suggest you should be looking at 2 beds as a minimum if you're looking to get tied into property ownership. This may mean London becomes unaffordable.

    So, in the sense you don't seem to have thought through the implications of a 1-bed place, then yes, I think you are being a little impulsive. Widen the net a little, even outwith the M25, see what your money gets, then look again at how "seriously perfect" this newbuild is. Or isn't.
    Originally posted by ReadingTim

    I agree with the sentiment behind this post. We're trying to buy my first property but specifically looked for a two bedroom instead of a one bedroom, as we didn't want to outgrow it in a few years if we decide to start a family.


    If you have no intention of having children, then a one bedroom property might be fine.
    • SuboJvR
    • By SuboJvR 12th Jun 17, 3:25 PM
    • 214 Posts
    • 153 Thanks
    SuboJvR
    • #9
    • 12th Jun 17, 3:25 PM
    • #9
    • 12th Jun 17, 3:25 PM
    Hi there

    We are in a similar situation to yourselves at the moment - don't forget stamp duty, solicitor fees, removal costs and "other things" when you are budgeting:

    Being a new build - is there any room that you can ask the developer to give you some incentive to buy e.g. contribution to stamp duty? In our case, the developer is paying £5000 of our stamp duty (£7500 total). This leaves us with £2.5k so in total stamp + deposit = £20k.

    Our solicitor fees will be around £1.5k including an additional fee for the Help to Buy aspect which is £185+VAT.
    Our mortgage broker fee is paid by the lender.
    We will need to pay the mortgage company a valuation fee - unsure what the final cost will be but somewhere between £200-500 I anticipate.
    Removal costs will be for us up to £1000 with full furniture and packing service, we are moving around 15 miles.
    And finally a mortgage arrangement fee which will be somewhere around 0.4% of the mortgage so ~£1000 but if needed this could be added to the mortgage.
    Our new build comes with pretty much everything except flooring so we are going to have to sort that with a third party (developer cost was extortionate as expected).

    And be careful with flats - if leasehold - you may end up paying more later on for the lease. Also service charges for the property? I don't know too much about this side, ours is definitely freehold.

    Stamp duty and solicitor fees generally cannot be added to the mortgage.

    Some of the other advice here is great so far - do think about the future as well. We are paying similar rent to you at the moment and we have reserved a three bed new build in Kent with garage for the same price as your one bed flat in London, however with it only being 20% equity loan not sure how that may affect your affordability calculations.

    The likes of Ebbsfleet by the way is having a lot of new properties going up and that's a 12 minute high speed link into London (Stratford or Kings Cross)

    Also - we aren't thinking of children at all at least not anytime soon but yet we would not manage in a one bed at all! It doesn't happen too often but it's great to be able to offer a room to someone for an evening if needed. Our big problem is accommodating all our bicycles :P
    Last edited by SuboJvR; 12-06-2017 at 3:28 PM.
    • croto
    • By croto 12th Jun 17, 4:50 PM
    • 38 Posts
    • 9 Thanks
    croto
    Hi everyone, thanks for all the input.

    Hi @SuboJvR, thanks for sharing your experience. I wasn't aware that developers offer an incentive to buy. I am definitely asking for the possibility.
    The state agency has suggested me to make an offer of £357500 and the developer would pay the stamp duty, which is a possibility.
    About being ready, I feel like I am financially ready. I have been spending way more than I should, this would be a reality check for me to start repaying for my own flat, as opposed to paying someone else's mortgage! That's the way I see it...
    My plan is to repay my mortgage as much as I can every year, before the government's loan 5 years interest free period is over. The interests from the mortgage lender will be at least double from the government's lease.

    BTW, the flat is leasehold, 125 years.

    Thanks again!
    • SuboJvR
    • By SuboJvR 12th Jun 17, 5:34 PM
    • 214 Posts
    • 153 Thanks
    SuboJvR
    Our experience with asking for money off the asking price was that they basically wouldn't budge, they said due to it being on the Help to Buy scheme. I assumed they must get something from the government too for supplying HTB homes and that maintaining that price point was very important to them. Plus I knew that the next potential buyers were literally right behind us so they didn't need to offer much to sell their properties there.

    That's why I pushed for the stamp duty. This is a cost that you need to have the actual money in an account for, ready to pay it. You probably won't be able to for example put it on credit card as solicitors don't like it - ours state in their terms that they don't allow this. But that's fine, as the developer is paying most of ours!

    Plus, adding to credit card debt would affect your monthly outgoing commitments so those kind of things should be discussed with a mortgage advisor as well. I plan to live like a monk for the next 6 months to save as much more cash as possible for any unforeseen extras :-) Little things can really have an impact. For example I have swapped our online shopping to Asda from Sainsbury's and so far am saving between £15-20 a week. That adds up to £60-80 a month which over the next five months until I expect we are in the house is £300-400 - that's a valuation fee, or the stairs + landing carpeted.

    I am currently seeing every purchase in terms of flooring for our house.
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