Help to Buy V's buying pre-owned

TMC35

Hi,

I am new to MSE and looking for some advice...

My husband and I are looking to buy our first home, we were previously renting but after our wedding in Sept 2012, moved back in with my parents to pay off our debts and save up deposit.

We opened a save to buy account with Nationwide to give us the option of 95% mortgage and have been saving into this since November.

Our current situation is as follows...

Combined salary £62k
Debts - loan of £5k paying £104 per month (may be able to pay off before we move)

Now we've paid off most of our debts we can save £2.5k per month and will have £16k by Aug which is when we intended to begin looking.

We were looking to buy a house up to £250k (to avoid stamp duty) and were potentially going to go with the 95% mortgage currently at 5.49% with Nationwide to allow us some spare money from our savings (which we should have by the time we actually move) for any home improvements etc but since the new help to buy scheme launched it has confused me....

We went to look at some houses and have seen one which we really like (won't be ready until the end of the year) but as it is new build it is £300k. My initial thought on this scheme was that if I can't afford to buy a £300k house then buying one with help is only going to help solve my issue in the short term and could very easily become extremely stressful further down the line when the interest on the equity loan kicks in...

I am also extremely confused as to how this interest is worked out, I know it's RPI +1% so if RPI was 2.7% would be be 3.7% interest over the year? and then if RPI increased to say 5% the following year, we'd pay 6% the following year? If this is the case then I see that element as really high risk.... or am I being silly and this is not how it's worked out?

So I am looking for advice really as to whether we'd be better off buying an older house and trying to make improvements to add value further down the line, or if the help to buy which would make our mortgage more affordable in the short term would be a better move.. I am so torn on this as I feel very nervous about buying a house full stop and don't want to make the wrong decision having come so far to pay off debts and save up.... My head tells me a pre-owed house will offer us better long term potential but won't necessarily be the house of our dreams but the sensible decision.

Also one last thing to add, we really do need to get the moving process going by the end of this year as quite difficult living with my parents, so whilst saving to get the bigger deposit and therefore get a better interest rate would be great, in reality it would prove incredibly difficult as we just want to start our married life now on our own!! I am 35 and my husband is 37 so we are also running out of years to pay back a mortgage!

Thanks in advance.

J_i_m

First off, you're saving 2.5k per month? And you have 5k debt? So why not simply pay off the debt in full ASAP? You'd be saving a bit on the interest.

Also larger deposit gives you a better chance of securing a better mortgage deal with a lower interest rate. So although you won't want to hear this... Just one more year of living with parents gives you the opportunity to put an extra 29k onto your deposit.

Worth thinking about?

Fire_Fox

£16K is nowhere near enough for a house up to £250K. You need a 5-10% deposit, money for surveys and legals and mortgage application including some to waste on a first purchase falling through, money for decorating and improvements, three months mortgage and insurance payments set aside in case of illness, injury, redundancy or difficult unplanned pregnancy meaning one or both of you cannot work.

Support for Mortgage Interest does not kick in for three months, was much longer a couple of years ago and could be again, it will only cover interest not capital payments, current rate is 3.6% so wouldn't cover your 5.5%. You are not running out of years to pay a mortgage, just because you begin at 25 years doesn't mean you cannot shorten the term as you go with overpayments.

TBH I don't think it's is head versus heart, it's heart versus heart you are desperately trying to justify overstretching yourselves and having your dream now instead of patiently waiting. It's nuts to be viewing properties when you are still £5K in debt, you are just torturing yourself and fuelling the fantasy. Settle the debt ASAP, this needs to be off your credit files to get the best credit rating, any remaining debt may be subtracted from your gross deposit by the lender to give a net deposit.

If you absolutely must to move out sooner rather than later, IMO move into cheap rented studio near work (reduce transport costs, sell a car if you have two) or downsize your expectations and buy a smaller property instead of a forever home, or take in a lodger or two. Alternatively deal with the fact you will live in a wreck for a few years as many generations have before you, you don't have to have to start creating a showhome.

TMC35

Fire_Fox wrote: »

£16K is nowhere near enough for a house up to £250K. You need a 5-10% deposit, money for surveys and legals and mortgage application including some to waste on a first purchase falling through, money for decorating and improvements, three months mortgage and insurance payments set aside in case of illness, injury, redundancy or difficult unplanned pregnancy meaning one or both of you cannot work.

Support for Mortgage Interest does not kick in for three months, was much longer a couple of years ago and could be again, it will only cover interest not capital payments, current rate is 3.6% so wouldn't cover your 5.5%. You are not running out of years to pay a mortgage, just because you begin at 25 years doesn't mean you cannot shorten the term as you go with overpayments.

TBH I don't think it's is head versus heart, it's heart versus heart you are desperately trying to justify overstretching yourselves and having your dream now instead of patiently waiting. It's nuts to be viewing properties when you are still £5K in debt, you are just torturing yourself and fuelling the fantasy. Settle the debt ASAP, this needs to be off your credit files to get the best credit rating, any remaining debt may be subtracted from your gross deposit by the lender to give a net deposit.

If you absolutely must to move out sooner rather than later, IMO move into cheap rented studio near work (reduce transport costs, sell a car if you have two) or downsize your expectations and buy a smaller property instead of a forever home, or take in a lodger or two. Alternatively deal with the fact you will live in a wreck for a few years as many generations have before you, you don't have to have to start creating a showhome.

Thank you for your insight but this doesn't really answer my question, which was regarding Help to Buy V's pre-owed....

Firstly a save to buy mortgage with Nationwide allows access to a 95% mortgage (subject to acceptance) and on a 250k house that works out £12,500, I estimate buying costs at £5k, although with save to buy they provide some discounts and £1000 cashback but I have not factored this in to be on the safe side, so that totals £17,500, I plan to commence my search in Aug when I will have £16k so, IMO enough time to save over and above what I will actually need and have some left over by the time we actually move.

You mention me getting rid of my car, well I did this 18 months ago, a sacrifice I made to help me to get to my goal of getting to own a home..... whilst I was 'patiently waiting' to get together my deposit.

My husband and I are just normal people, trying hard to get on the ladder and start our lives together but it's tough these days, I was just after some advice on whether we are better to go it alone or if the government schemes might be worth us looking at....

I am not wanting a showhome right now, I am fully prepared to take on a lot of hard graft to get what I want but is it so wrong to want to move on and have your own space.... I am new to MSE and was just looking for some 'friendly' and helpful advice on my original question.

WestonDave

In terms of your decision, be wary of new build houses with "assistance schemes". To give you an extreme example, in Bath where I live Crest recently put a small number of new build 3 bedroom terraced town houses (built on an old crane works site near the centre) on the market. You can probably imagine that these were dressed very nicely, but were 3 floor buildings on a small footprint. They were originally marketed for double the price of my 3 bed detached house on the outskirts in a decent area. I suspect if you used your £300k house as an example, and allowed for knocking down pre-owned prices a bit, you'd soon see where the discounts and assistance comes from - your own pocket! Fair enough some people want the pleasure of a new house, just like some people want a brand new car, but in both cases you pay a premium for that "first" owner status which disappears the minute you collect the keys.

Without knowing where you are and what house prices are like its impossible to advise but it does look like you've started with an arbitrary number (the stamp duty limit) and set out to spend up to that. It might be better to start from what you need (bearing in mind your later start, and the need to keep the mortgage down in order to clear it) and see how little you need to spend to do that. Do you really want to spend as much as you can afford on a house, or would you rather have a cheaper/smaller house and some money left over for nicer holidays or hobbies?

TMC35

WestonDave wrote: »

In terms of your decision, be wary of new build houses with "assistance schemes". To give you an extreme example, in Bath where I live Crest recently put a small number of new build 3 bedroom terraced town houses (built on an old crane works site near the centre) on the market. You can probably imagine that these were dressed very nicely, but were 3 floor buildings on a small footprint. They were originally marketed for double the price of my 3 bed detached house on the outskirts in a decent area. I suspect if you used your £300k house as an example, and allowed for knocking down pre-owned prices a bit, you'd soon see where the discounts and assistance comes from - your own pocket! Fair enough some people want the pleasure of a new house, just like some people want a brand new car, but in both cases you pay a premium for that "first" owner status which disappears the minute you collect the keys.

Without knowing where you are and what house prices are like its impossible to advise but it does look like you've started with an arbitrary number (the stamp duty limit) and set out to spend up to that. It might be better to start from what you need (bearing in mind your later start, and the need to keep the mortgage down in order to clear it) and see how little you need to spend to do that. Do you really want to spend as much as you can afford on a house, or would you rather have a cheaper/smaller house and some money left over for nicer holidays or hobbies?

We live in the South East so prices are high.... I have been looking for some time on rightmove and have been looking at what houses are up for and then checking the actual sold prices once they are updated... this has become somewhat additive! and I believe we can get a 3 bed house in a reasonably nice area for £250k but may need work...

With the new builds, we have looked at a few and this one has a bigger footprint than the others (so big enough as a forever home if needed) and is in a small development of just 76 houses in a lovely area, so won't be living on a building site for years, but I agree with you they do seem overpriced as they are new builds but having looked at some other townhouses on the market in the same area (built in 2008) they are on the market around the same price but that's not to say they will go for that....

It's such a big decision and I am always wary of any deal that on the surface looks as though it will help as more often than not you pay for it in the long run one way or another.

Cheeky_Monkey

My advice would be to buy an older, much cheaper, house.

I know someone who was relying on getting the 95% mortgage as they had opened the Save to Buy account with Nationwide and then when it came to it, their application was rejected.

TMC35

Thanks for the advice on this, we have looked in much closer detail at the help to buy scheme and have decided it's not for us and will buy a pre-owed house. I did have it wrong about the RPI interest part of the loan and it wasn't as much as I thought, but even so if you paid it over the entire mortgage term it would add up to tens of thousands.

I couldn't help but worry as to how possibly we'd pay back the extra 20% equity share, and if we couldn't then we'd have to sell our home in order to re-pay at a time in life where you would hope to be in a less stressful position.

Perhaps this scheme works for people looking to move up the ladder after five years, but I think for us a much cheaper to buy forever home that we can add value to with improvements/extending over a number of years seems the most sensible option.