Help to buy equity loans

brit1234

Building_Surveyor wrote: »

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.

No doubt between 2000-2007 ie the bull market in property before the credit crunch.

TMC35

dnewcombe10 wrote: »

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.

Have you thought about opening a Save to Buy account with Nationwide? You need to regularly save at least £50 a month in the account for 6 months after which time you can apply for a 95% mortgage (subject to acceptance) they also offer help towards some legal costs and cashback too.

Might be worth looking at for you if getting to 10% is proving too difficult.

neverdespairgirl

I can see a potential difficulty with the equity loan scheme even if house prices do go up.

Say, to keep the figures simple, you buy a £100k 2 bed house with a £20k (20%) equity loan, £5k (5%) your deposit and a £75k (75%) mortgage. A 3 bed house costs £150k.

In 8 years' time, house prices have gone up 50%. So your 2 bed house is now worth £150k, and the 3 bed house you now need because of the kids costs £225k.

You now need to repay the equity loan, and 20% of £150k is £30k. Your deposit's value has gone from £5k to £45k. Most of the increase in value goes to pay off the equity loan, meaning that the gap between your house and a bigger one is greater than it would otherwise have been.

If, instead of the equity loan, you put down your own deposit of £15k (15%) on the £100k 2 bed house now, when you sell in 8 years' time, you pay off the mortgage, and are left with a £75k deposit for your 3 bed.

That's assuming prices go up.

kingstreet

Don't forget the mortgage repaid in the seven years.

Example with HTB

You buy the property for £100k with 20% equity loan and 5% deposit.

If you borrow £75k, 75% on a £100k purchase, after seven years your mortgage balance will be £65,595.

If the property now sells for £150k, you repay the equity loan, £30k and your mortgage, £65,595.

You have £54,405 left after fees/costs.

Example Without HTB

You buy the property for £100k with 15% deposit.

If you borrow £85k, 85% on a £100k purchase, after seven years your mortgage balance will be £74,341.

If the property now sells for £150k, you repay the mortgage, £74,341.

You have £75,659 left after fees/costs.

Conclusion

If you assume property prices will increase, the HTB equity loan becomes more expensive to repay. However, some of that increased expense is defrayed by a lower mortgage requirement/settlement.

If you do not have the higher deposit required to avoid HTB, there may be a cost of delay. Will the £100k property today cost more by the time you have raised your deposit?

Interest charges on the HTB loan need to be taken into account from year six onwards.

More choice of property without HTB.

neverdespairgirl

I was using interest-only mortgage figures, on the grounds that a repayment one would cause my arithmetic brain cell to go on strike.