MSE News: Budget 2013: Help to Buy mortgage scheme to launch

persa

If you pay back the loan prior to selling - how much do you repay? The amount originally borrowed, or 20% of an estate agent's valuation?

I can see how the equity loans brings better rates, but a 75% mortgage on a property in central London still seems out of reach. I'm sure I could get a mortgage, but the repayments would still be higher than seems sensible.

shortchanged_2

persa wrote: »

If you pay back the loan prior to selling - how much do you repay? The amount originally borrowed, or 20% of an estate agent's valuation?

I can see how the equity loans brings better rates, but a 75% mortgage on a property in central London still seems out of reach. I'm sure I could get a mortgage, but the repayments would still be higher than seems sensible.

Also to note for London is that these mortgages have to be taken on a repayment basis only, not good news when London is still highly dependent on IO mortgages.

kingstreet

It isn't an interest-free loan.

It's interest-free for five years. From year six onwards, 1.75% of the initial loan amount is payable and this increases by RPI + 1% each year.

The initial loan is a percentage of the purchase price, maximum 20% of that and when the loan is paid-off, 20% of the value at that time is repayable.

If you have a look here, you'll see how existing shared equity schemes work. This is a simple extention of FirstBuy and the old Homebuy Direct;-

http://www.myfirsthome.org.uk/content/1/73/staircasing---your-responsibilities.html

Bark01

If new builds are overpriced (which I also believe), when the house is revalued in 5 years would the price be less as its no longer a new build and has devalued (all other things being equal).

?????

daverave7

kingstreet wrote: »

It isn't an interest-free loan.

It's interest-free for five years. From year six onwards, 1.75% of the initial loan amount is payable and this increases by RPI + 1% each year.

The initial loan is a percentage of the purchase price, maximum 20% of that and when the loan is paid-off, 20% of the value at that time is repayable.

If you have a look here, you'll see how existing shared equity schemes work. This is a simple extention of FirstBuy and the old Homebuy Direct;-

http://www.myfirsthome.org.uk/content/1/73/staircasing---your-responsibilities.html

So, if house prices rise by 4 % per year for the next 5 years (however unlikely), it would be essentially like having a loan or mortgage at 4 %. Am I right?

But since it's (currently) for new builds, these usually tend to decrease in value over the first few years, so should you pay back the equity loan during the first few years, then you would have to pay back less? A loan at -ve interest!

kingstreet

Yes, to both questions.

blizeH

As a home owner without an agenda either way - I think house prices right now are still very over priced and I don't like the constant government schemes to keep their values high.

Can you even imagine the damage this will cause if there is another house price crash though (which IMO there is likely to be)

biglugs

blizeH wrote: »

As a home owner without an agenda either way - I think house prices right now are still very over priced and I don't like the constant government schemes to keep their values high.

Can you even imagine the damage this will cause if there is another house price crash though (which IMO there is likely to be)

The intention of this scheme isn't to keep house prices high - it's to allow people to get access to housing which they can't currently do because of mortgage availability problems.

There has been lots of talk about this driving up house prices, but if it is really successful it might do the opposite. My reasoning:

- house prices are currently high because of the 1m+ Buy to Let properties which are rented out at extortionate rents
- landlords can charge high rents because you have no choice, because you can't buy
- this scheme allows those trapped by high rents to get out and own their own home
- landlords have to lower rental prices to compete with the purchase option
- some landlords find that BTL no longer makes economic sense, so decide to sell up
- more houses on the market means more supply so helps to keep prices down.

moriarty888

biglugs wrote: »

The scheme will be open to applicants for 3 years, not end after 3 years.

You will be able to carry on with the government owning 20% of your property (although the fee will be payable after 5 years, as we discussed earlier).

The intention is that as you pay off some of the capital on your mortgage after a few years you will either remortgage and clear the equity loan, or over-pay and clear it that way.

Yes, but my point is it won't be open to new people, hence trying to sell your property will be very difficult as buyers won't have this extra 20% pot of money. Which means having to lower your asking price, which means negative equity. With first time buyers especially, situations change, young couples split up, move areas, jobs, countries and you won't be able to cover the original price you paid for the property.

biglugs

moriarty888 wrote: »

Yes, but my point is it won't be open to new people, hence trying to sell your property will be very difficult as buyers won't have this extra 20% pot of money. Which means having to lower your asking price, which means negative equity. With first time buyers especially, situations change, young couples split up, move areas, jobs, countries and you won't be able to cover the original price you paid for the property.

That assumes that the market won't have recovered by then. By 2016 we will have a Labour government and everything will be OK, because Ed Balls will be Chancellor. Probably.