Help to buy equity loans

dnewcombe10

Hi all,

I've recently been taking a look at some new buys and would really benefit from the lower % deposit needed when using the Help to buy scheme however I'm unsure on how good this scheme really is.

I've looked at the costs and understand that after 5 years you will have to start paying interest on the equity loan the government give you.

Are there any obvious issues with doing this scheme that I am not picking up on other than the interest costs that occur eventually. Could selling the home at the end of 5 years get around that and where would that leave me?

Hope you can advise,

Dan.

kingstreet

If the property value increases, you'll pay back a higher amount than you borrowed.

For example, a £150,000 property with a 20% equity loan means you borrow £30,000.

If the property value increases to £200,000, you repay 20% of that, or £40,000.

As long as you understand that and how the interest payable from the beginning of year six increases each year, you should be okay.

I'll leave the relative merits of newbuild v older property to others.

brit1234

dnewcombe10 wrote: »

Are there any obvious issues with doing this scheme that I am not picking up on other than the interest costs that occur eventually. Could selling the home at the end of 5 years get around that and where would that leave me?

The two big ones:

1. The new builds are typically over valued so you will fall into instant negative equity.
2. You can't guarantee there will lenders who will offer you a remortgage and you may be stuck on SVR just as mortgage rates go up and the equity loan payments are due.

It seems a risky strategy to me. Have you attempted to save a bigger deposit.

Building_Surveyor

brit1234 wrote: »

The two big ones:

1. The new builds are typically over valued so you will fall into instant negative equity.
2. You can't guarantee there will lenders who will offer you a remortgage and you may be stuck on SVR just as mortgage rates go up and the equity loan payments are due.

It seems a risky strategy to me. Have you attempted to save a bigger deposit.

to say you will instantly falling into negative equity is not fact!!! you are merely speculating!! There may be an increased risk, but that doesnt guarantee that it will happen.

Thrugelmir

dnewcombe10 wrote: »

Could selling the home at the end of 5 years get around that and where would that leave me?

I wouldn't use the scheme on the basis that house prices are going to rise over the 5 year period, so you can cash in and walk away with a profit.

This scheme is very much to help FTB's. As more likely prices will stagnate for some length of time while a correction takes place.

brit1234

Building_Surveyor wrote: »

to say you will instantly falling into negative equity is not fact!!! you are merely speculating!! There may be an increased risk, but that doesnt guarantee that it will happen.

Sorry forgot to put "you will typically fall into instant negative equity." like in my other post today.

However you have to admit the odds are more in favour of instant negative equity than not. New builds tend to have a premiun added to their costs because they are new which instantly fulls off when purchased. On top of that shared equity schemes tend to have a more inflated price than other new builds on the estate.

In reality the scheme is little more than a bung to the big house builders who fund the conservative party like labour before them. Its dressed up as helping first time buyers but in reality keeping newbuild prices high.

Originally the builders were reliant on loose lending and gift deposit fraud before the credit crunch to residential buyers and buy to let. Now they sell typically to foreign Investors (mostly from far east) and people with government schemes.

I would stay away as it is overpriced, poor quality small dimension trash.

dnewcombe10

Thanks for all the advice, I can understand that there are mixed opinions going with a new build or an older home.

As far as the deposit is concerned there's nothing but time stopping me bringing it up to 10%.

I see how this scheme is a big risk due to the price of the house likely depreciating a chunk as soon as the keys are handed over. So it looks like i'll just hold off although the benefits of having a brand new home does sound nice.

Teknohead

My girlfriend and I were in a marketing suite applying for help to buy on April the first the day it started after getting our mortgage in principal fr the house we want a week later we proceeded with the application. Another week later and the paperwork was ready to go in, fr the 20% you have to go through a company called orbit we were informed on Friday we were being declined because we do not meet their criteria after a bit of back and forth between our financial advisors and orbit it was found that the government had changed the criteria the week starting the 8th of April and (this is the kicker) told orbit not to inform any financial institutions they deal with of this rather large piece of information!! I had a very heated phone call with orbit who seem to think that saying its down to the government is a good answer to any complaint which I don't agree with considering that on their website the guidelines for application are still the same ones we applied under! So the government think its ok to change the rules as they see fit without having to answer to anybody, me and my partner are now out of pocket because of paying for searches to begin and orbit will not cover them. So just be carefull if u apply fr this as the powers that be may decide to move the goalposts at any time I just wonder if it would alright for somebody to shaft the government and get away with it. Somehow I think not!!

kingstreet

Did you apply for FirstBuy in the first place, Tekno?

1 April was the changeover point as Firstbuy was replaced by Help To Buy Equity Loan on that date.

HTB now only requires you to complete the Property Information Form and Reservation Form with the builder and submit that to the local HCA HomeBuy Agent for agreement.

This is Orbit, as you suggest, if you are in the Midlands, or East of England.

The scheme does make clear that you should not instruct solicitors or apply for a mortgage until you have your Authority To Proceed back from the HomeBuy Agent;-

http://www.orbithomebuyagents.co.uk/main.cfm?type=HELPTOBUY2

Building_Surveyor

brit1234 wrote: »

Sorry forgot to put "you will typically fall into instant negative equity." like in my other post today.

However you have to admit the odds are more in favour of instant negative equity than not. New builds tend to have a premiun added to their costs because they are new which instantly fulls off when purchased. On top of that shared equity schemes tend to have a more inflated price than other new builds on the estate.

In reality the scheme is little more than a bung to the big house builders who fund the conservative party like labour before them. Its dressed up as helping first time buyers but in reality keeping newbuild prices high.

Originally the builders were reliant on loose lending and gift deposit fraud before the credit crunch to residential buyers and buy to let. Now they sell typically to foreign Investors (mostly from far east) and people with government schemes.

I would stay away as it is overpriced, poor quality small dimension trash.

Funnily enough i was speaking to a personal property developer last week who has built his property profit and empire by only purchasing new build properties and land. It can be done if you know what your doing. The problem is when people don't know the facts or they suddenly need to move 2 years after they've moved in, realizing they have not built enough equity in the property. Buy a property in the wrong area and it can happen overnight, new or old.

I have recently bought a new build with a 15% deposit not with the help to buy scheme so i cant comment in regard to that. But i do know how hard it can be saving for a deposit, especially if you are on your own, have children or are currently renting. I was all three. So any help the government appear to be dishing out, if its being offered people are going to jump at the chance and deal with the consequences later. Such is life.

Mr._Pricklepants

Building_Surveyor wrote: »

to say you will instantly falling into negative equity is not fact!!! you are merely speculating!! There may be an increased risk, but that doesnt guarantee that it will happen.

This brit1234 poster is well known in the Debate House Prices and the Economy section of this board as a bit of a laughing stock. Time after time his ludicrous predictions and assertions have been discredited. You might have noticed his signature is a bit out of date also.

I recommend to all on this forum : please do your own research.