Budget 2013 live....

Generali

Graham_Devon wrote: »

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.

Right but if you imagine a situation where you have a mortgage of £100k then the last 15,000 is constantly attracting interest in the same way as the 15% Government loan which remains unpaid.

Don't forget, most people leave their first house well before very much of the mortgage has been repaid so in most cases this isn't going to be an ever growing millstone (if a millstone can grow).

Graham_Devon

Generali wrote: »

Right but if you imagine a situation where you have a mortgage of £100k then the last 15,000 is constantly attracting interest in the same way as the 15% Government loan which remains unpaid.

Don't forget, most people leave their first house well before very much of the mortgage has been repaid so in most cases this isn't going to be an ever growing millstone (if a millstone can grow).

I agree, to a point.

But this is about buying a newbuild, so your 5% deposit it pretty much gone straight away.

If the buyer using this scheme didn't want that 20% attracting interest, they would need to pay it off completely within the 60 months. Whether they sell the house, get another loan, re-mortgage etc, so long as they pay the lump sum off within 60 months it won't attract interest.

If they don't, it will attract interest.

My issue is with the fact that some seem to assume that after buying the house, this sort of loan could be paid off within 60 months.

It's not really anything like a mortgage. At least that's being paid down. This loan just grows after year 5 unless you can pay it off completely through whatever means.

I'm not sure that most leave their house in the first five years, and this isn't about the first house, this is open to everyone. Second, third, fourth buyers etc.

ruggedtoast

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.

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).

It wouldn't be a small number if they built a lot of council houses and made them available to normal people.

Decent, hard working people who seek merely to live in a modest house without the risk of being thrown out. People who dont necessarily want hundreds of thousands of pounds worth of debt forced on them by casino capitalists, and sleazy spivs in pin stripe suits and braces.

What is there for these people?

NOTHING.

ukcarper

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.

Graham where has your information from from what I'veread it the original fee of 1.5% that increases by RPI + 1% seems to good to me so I'd like to see your information. It seems you are right as it can only be repaid when house is sold or mortgage paid off.

Graham_Devon

ukcarper wrote: »

Graham where has your information from from what I'veread it the original fee of 1.5% that increases by RPI + 1% seems to good to me so I'd like to see your information. It seems you are right as it can only be repaid when house is sold or mortgage paid off.

Probably the same place as you have your information from as we are both saying the same thing?

I think the loan can be repaid at any time. I don't think the house has to be sold. It just has to be repaid in full. So people could save for instance £100 a month into an account and pay it off in full when they have saved enough.

So basically, unless you can pay it off in full before the 60 months are up, your 20% loan will be attracting what I feel is quite a hefty fee each year. RPI + 1% can't really be ignored. 2 years ago, you'd have had 6.6% whacked onto the outstanding balance that year. 2-3 years of that will see your loan increase quite significantly. On a 30k loan, you'd have to be saving £159 per month JUST to keep up with the extra amount added to the loan at that rate. All seems a bit scary to me. I know I'm not great with risk, but I don't think many of us would see this as particularly great.

If the house has to physically be sold before paying off it's even worse than I thought!! Though looking at the sums above with RPI running at around 5%, it's more than likely the only way to pay this off would be windfall or indeed, selling up for most people.

grizzly1911

Generali wrote: »

(if a millstone can grow).

Rolling stones don't gather moss, snowballs perhaps.

ruggedtoast

Regardless of the details of this scheme there are going to be a lot of people who thought they were priced out forever, going to bed very excited tonight with the notion they might be able to finally buy somewhere next year.

I hope it works out for them.

Generali

ruggedtoast wrote: »

It wouldn't be a small number if they built a lot of council houses and made them available to normal people.

Decent, hard working people who seek merely to live in a modest house without the risk of being thrown out. People who dont necessarily want hundreds of thousands of pounds worth of debt forced on them by casino capitalists, and sleazy spivs in pin stripe suits and braces.

What is there for these people?

NOTHING.

How is the Government meant to pay for that?

grizzly1911

ukcarper wrote: »

It seems you are right as it can only be repaid when house is sold or mortgage paid off.

Will this be the fixed amount repaid or a proportion of the then current value/sale price. Will the government get a capital appreciation as well as the annual fees?

wotsthat

Graham_Devon wrote: »

If the buyer using this scheme didn't want that 20% attracting interest, they would need to pay it off completely within the 60 months. Whether they sell the house, get another loan, re-mortgage etc, so long as they pay the lump sum off within 60 months it won't attract interest.

If someone doesn't want the 20% attracting interest they pay it off in 5 years or save it up instead.

Can't see the big deal myself. If you look at your own calculations then at year 8 £4,384 has been added to a loan of £36,000. That's equivalent to an interest rate of 1.5% i.e. a low priority debt. RPI at 4% each year is deflating the real value of debt too.