Help to Buy - Can this scenario work after 5 years?

kamb1ng

Hi all, I've been playing around with numbers and wonder if this is a possible scenario with Help to Buy at the end of year 5.

Present time:
Purchase price: £300,000
5% deposit = £15,000
75% mortgage = £225,000
20% govt equity = £60,000

5-yr fixed mortgage at 3.6%.
Assume house price raises 1% pa.

At the end of year 5:
Mortgage principal I will have paid = £20,715
Amount I will still owe mortgage lender = £204,285
House value = £315,300
My share (80%) = £252,240
Govt share (20%) = £63,060

My question is, at the end of year 5, can I take a new mortgage based on the value of the house (£315,300) to remortgage the house and pay off the 20% govt share to staircase to 100%?

At the end of year 5 I will have almost £48k in equity (£252,240 - £204,285). So the new mortgage will be 85% LTV without any govt equity share.

Any input is greatly appreciated. Many thanks.

monty-doggy

You have not factored in that interest rates could change and house prices can go up or down? You could lose your income or any other number of things could happen.

On paper you can most certainly make your numbers stack up, but that's all idealism.

There are so many other things to factor in like maintaining your credit rating, plus there is no guarantees.

Have you spoken with the company offering the help to buy to see what the terms of stair-casing are?

Also have you based the above sums on the fact that more interest is paid off than capital in the first few years?

kamb1ng

monty-doggy wrote: »

You have not factored in that interest rates could change and house prices can go up or down? You could lose your income or any other number of things could happen.

On paper you can most certainly make your numbers stack up, but that's all idealism.

There are so many other things to factor in like maintaining your credit rating, plus there is no guarantees.

Have you spoken with the company offering the help to buy to see what the terms of stair-casing are?

Also have you based the above sums on the fact that more interest is paid off than capital in the first few years?

Yes of course any of those factors can make an impact and I completely understand that there is no guarantee in life (except death and taxes ). I also have no idea what interest rate or house prices will be like so I'm using historical-based assumptions. If I'm in negative equity then obviously I won't be in a place to staircase.

To answer your last questions, by the end of year 5 I will have paid £39k in interests, so almost double the principal paid (£20,715). Ouch, and yes I've taken that into account.

monty-doggy

Well in theory, it all stacks up then. And what have you got to lose? If things don't quite go to plan, you still own the lions share of your property, and can look to purchase the other 20% when you are in a position to do so. At least you will be on the ladder, which is where a lot of people wish they were right now

Noddy32

What about doing a 2 year fix, overpaying, then remortgaging in 2 years to buy back 10%. Then the same 2 years later, that's my plan, buy it back before interest kicks in and I'm also assuming that as buying a new build which tend to be slightly inflated price wise at purchase the market value won't have increased much over the first 2 year period, assuming that house prices increase at all.

TrickyDicky101

Personally, if it was me, I would base my calcs on pessimistic assumptions ie factor in a property valuation decrease (or at most static over 5 years) of say -5%.

A lot can happen in 5 years though so the only thing you can virtually guarantee is that whatever assumptions you make will have been proved wrong by the end of the 5 years!

amnblog

The answer you want Kam is yes. Subject to the value of the property being sufficient you can do that.

You may well find however, in 5 years the benefits of getting off off the h2b scheme are marginal.

You will be paying a low rate on the equity loan based on the original value.

kamb1ng

Noddy32 wrote: »

What about doing a 2 year fix, overpaying, then remortgaging in 2 years to buy back 10%. Then the same 2 years later, that's my plan, buy it back before interest kicks in and I'm also assuming that as buying a new build which tend to be slightly inflated price wise at purchase the market value won't have increased much over the first 2 year period, assuming that house prices increase at all.

That's a brilliant plan. It's actually doable even in a scenario where house prices remain flat.

Have you done any research on how this can actually be done with the lender and government when the time comes to remortgage and staircase?

Cheers!

74hotspur

Wouldn't you be better off just paying the loan back rather than overpaying on mortgage? that way in 5 years you can get a normal mortgage at cheaper rates. After all the equity loan is interest free for first 5 years

silverdog

Hi, yes I was thinking that 74hotspur, can't you just overpay on the 20% equity loan and try to pay it off in 5 years? Do they allow that?

Noddy32

You can't over pay on the equity loan. You can staircase but only by a min of 10%. To overpay on something that is interest free doesn't make sense by overpaying on the main mortgage you can save £000's in interest, reduce the balance therefore creating more equity to buy back part of the equity loan sooner. Don't forget the 20% is always valued at market value so my idea is to repay it before the house value increases which in turn increases the value of the equity loan.