Budget 2013 live....

Graham_Devon

ukcarper wrote: »

Can't you start paying loan down straight away. I beleive you have to put 5% in yourself so it's like having a 95% mortgage with 20% of that interest free.

Yer - possibly.

But considering the fact you needed this help in the first place, it's quite unlikely that most will be rigorously paying it down straight away. That, of course, would be the ultimate optimists view.

Just got to ask yourself how many people realistically pay off 20% of their mortgage within the first five years....You';ll then have the answer as to how feasable your idea to avoid the fee's is.

ruggedtoast

Over on the forum hpc.co.uk this budget has been about as welcome as a torpedo amidships the Belgrano.

ukcarper

Graham_Devon wrote: »

Yer - possibly.

But considering the fact you needed this help in the first place, it's quite unlikely that most will be rigorously paying it down straight away. That, of course, would be the ultimate optimists view.

Just got to ask yourself how many people realistically pay off 20% of their mortgage within the first five years....You';ll then have the answer as to how feasable your idea to avoid the fee's is.

The help is with deposit not monthly installments.


£200k house, you 5% £10k, government £40k, mortgage £150k

Mortgage payments for £150k £897, would be £1124 for full 95% save difference £13.6k + interest over first 5 years.

Outstanding debt on £150k after 5 years £133k + (£40k -£13.6k) remaining of loan so total outstanding debt £160k.


A good deal for sensable borrowers.

ruggedtoast

Of course they could have just built a lot of council houses with this money and helped everyone.

Generali

Graham_Devon wrote: »

Just noticed theres quite a sting in the tail of the new "Help to buy" scheme.

The 20% loan is interest free for five years. However, after that...

In year six, it will attract a fee of 1.75%

This fee is yearly, so an amount will be added for every year that passes. However...

In year 7 the fee jumps, and turns into RPI + 1%.

So, lets say your new build is 180k. You get a £36,000 loan.

By year six, that loan has attracted £630, making it £36,630.

But year 7 comes along, and lets say RPI is at 4%, hardly unreasonable looking at charts over the last decade.

This will add £1,831 to the loan.

Year 8 and the same figures....another £1,923 added.

By year 8 your loan is now £40,384

This is on a newbuild property, so you were in a good 10% instant negative equity straight away.

You'd better hope prices rise....and if they do, the government will want half of the rise on the 20% loan aswell as the interest outlined above.

Ouch. We've had many people stuck with interest only loans. What happens if they get stuck with this? By year 15, that annual fee will be growing rapidly, especially if inflation takes hold. Many won't be able to pay the mortgage down as quick as the loan is rising. "Help" indeed.

If your house is rising in value by RPI then its value will be rising a lot more quickly than the value of the loan.

Also, mortgage rates are almost always > inflation so using the snowballing principle you are better off paying off your higher interest debt which means you mortgage. Don't forget that if this money was borrowed via a mortgage rather than by the Government scheme it also would be attracting interest at a higher rate.

You demonstrate the rather alarming impact of compound interest on debt perfectly but it's only a small part of the picture.

Generali

ruggedtoast wrote: »

Of course they could have just built a lot of council houses with this money and helped everyone.

That would only help a small number of people who qualified for the subsidised housing. The rest would be worse off due to a higher level of debt and the cost of having to maintain those houses forever.

Also, as this is all off balance sheet debt there is no increase to the national debt. I don't know why but perhaps one of the accounting types that post here can explain. It's something to do with this being a financial scheme according to the Torygraph (whatever that means).

Thrugelmir

Generali wrote: »

Also, as this is all off balance sheet debt there is no increase to the national debt.

The liability is secured by a corresponding asset.

Given that the mortgage granted will almost certainly be a repayment one. Then providing application is underwritten correctly then risk of loss is minimal.

The data now amassed by credit agencies means that even compared to times just 10-15 years ago. The ability to filter out and decline applications is vastly improved.

Once utility companies start reporting into Experian as well. There will be nowhere to hide for people that don't settle their bills on time.

grizzly1911

Generali wrote: »

That would only help a small number of people who qualified for the subsidised housing. The rest would be worse off due to a higher level of debt and the cost of having to maintain those houses forever.

Off set by contained HB bill and or full or partial rental payments by those in work. Plus their would be acorresponding asset on the books (or off the books depending on how the set up the bookkeeping).

grizzly1911

ukcarper wrote: »

The help is with deposit not monthly installments.


£200k house, you 5% £10k, government £40k, mortgage £150k

Mortgage payments for £150k £897, would be £1124 for full 95% save difference £13.6k + interest over first 5 years.

Outstanding debt on £150k after 5 years £133k + (£40k -£13.6k) remaining of loan so total outstanding debt £160k.


A good deal for sensable borrowers.

There is a utilisation fee that increase if you don't refinance from year 5.

Somehow I don't believe for one minute that the government is going to lose out on at least the inflation link on that debt in that 5 years either.

Graham_Devon

Generali wrote: »

You demonstrate the rather alarming impact of compound interest on debt perfectly but it's only a small part of the picture.

The issue is....this debt you are not paying down each month. It sits there as a constant, only increasing.

Unless, as like UKCarper states, you make monthly payments, but theres no detail on whether that's even possible.

So, while mortgages are paid down, this isn't. It only grows.

I think it's fair to say the majority having just bought a house won't be paying this 20% loan off straight away. At least thats the evidence from Firstbuy, interest only etc. Nice to think that they would, but surely these rather sensible astute people would see that paying a larger deposit on their own would be financially advantageous over the loan for a deposit route.

Theres 2 different schemes here too, I'm talking specifically about the "help to buy" scheme, which can only be used on newbuilds.

Edit: Just found confirmation. The whole loan needs to be paid off. No dribs and drabs. So for the people ukcarper needs to talk about, they would need to put monthly payments into a savings account or something and save up the value of the loan.