Help to Buy questions?

wiggywoo9

Hi

I'm interested in the Help to Buy scheme and just have a few questions I'm confused about. I'm asking these prematurely as I don't have a job yet, let alone a deposit. I'm 21 in July, just graduated university, single parent to a 2 year old and on IS.

Right so, I'm getting voluntary work experience atm to improve my CV, my sister is having a year off to look after her baby and has agreed to look after my son (I'm paying her £15 a day too- better than the £35 at CM!). I'm hoping to get a job at least by next year, use the 3/4 yr nursery funding to help with childcare. So I'll still be on IS for a little while.

I checked and £6000 is limit of savings while on IS. If I scrimp and save, which I can atm because I've overpaid all bills and rent from student loans, I can get a bit of that. I already have £1,500 in a bond my mum saved for me, I'm due a £1,200 overpayment Student Finance messed up with nursery fees, so I'll have £2,700. I'd just need to save another £3,300, which may take longer than I expect but will be able to do.

I've looked at Help to Buy new homes in my area, there's homes from £80,000 to £100,000, and then ones at £104,000 and £134,000. So am I right in saying a £6,000 deposit will be ok with these, the lower priced ones in particular?

I'm renting a 2-bed maisonette from a HA at the moment but getting very conscious of how long mortgages are, how inadequate it'll be to live here long-term and what I want to leave my son. There's two steep flights of stairs, it's all outdated and not a good area.

I'm just wondering if my ambition to get my own home is going to be easier with the Help to Buy?
Is the 6,000 a good amount (I'm guessing I'll need more anyway, for fees, etc)?
What kind of job salary am I looking at here and how long do you need to be employed?
How do I improve a non-existent credit score (I only have a student overdraft which I'll pay off no problem)?
How much are other fees going to be (it says buildings insurance/buying fees?)?
If things go bad, like I lose my job, have sudden things to pay for, etc, what will happen? Will I lose all my money/mortgage, will I be entitled to any help/benefits? I'd just like a 'just in case' safety net?
Am I being unrealistic to hope that by the time I'm 25, I can have my full deposit, a job and look forward (?!) to getting a mortgage?

Oh and if its five years, will the scheme still be running- will I be saving for nothing?

Thanks and please bear with me as I'm just trying to do right long-term and not be stuck on HB or paying expensive rent all my life!

Idiophreak

You need a minimum of 5% deposit - so £6k will get you to a maximum of £120k...but as you said, you need to think about fees and so on...Which will run to a couple of thousand, without thinking about furniture, white goods and other one-offs associated with moving.

If you get 80% LTV through the scheme, you'd be looking at 64-80k borrowed for a 80-100k property...Assuming borrowing on a 3.5x multiplier, that means your wages would need to be between 18 and 23k each year...and you'd pay something like £400-450 per month for the mortgage.

You can improve your credit score by getting a credit card, spending on it each month and clearing it in full - also, maybe, a cheap mobile contract...ensure you're on the electoral roll and that all the information on your credit file it correct.

Whether it's achievable basically depends on your likely earnings, your ability to save before you buy and your ability to save thereafter (to repay the equity loan one way or another).

wiggywoo9

Hi thanks, that's something I forgot to add, as the Help to Buy is a loan, how and when is this to be paid back? Is it included in the mortgage or would need to be budgeted separately? Just wondering how to afford the actual mortgage plus potential pressure of getting rid of the government loan?

kingstreet

You repay the loan on sale, at the end of the maximum 25 year term, or earlier by choice.

After 5 years, you start to pay a fee which is 1.75% of the loan in year six, increasing by RPI + 1% per annum. So, if inflation runs at 4%, the rate would be 1.87% in year seven, 2.0% in year eight and so on. This can be paid annually, or monthly.

You repay the actual percentage of the property value you borrowed at the outset. If you borrow 20%, you repay 20% of the property's current value at the time of repayment, not the notional £ value you borrowed. As a result, you could pay more, if the property value has increased, or less if it has fallen.

There is a calculator provided by the HCA which its HomeBuy Agents use to determine if your plan is affordable and fits the scheme guidelines.

demontfort

I'm not by being nasty to the OP, good luck with your future plans but hopefully in 4 years time they'll have scrapped Help to Buy and all the other garbage first time buyer "assistance".

It's a crackpot scheme to entice people in your position who may struggle with a mortgage to overburden themselves financially. Denying you a help to buy mortgage would be a classic case of being cruel to be kind.

wiggywoo9

Well if it is scrapped before I can use it then I suppose I'll just keep working, paying rent that goes nowhere but hopefully have 10% deposit, which I can just use to get 90% mortgage. There's no other way of getting a long-term place to live- if I continue where I am, I'll go mad as its costing me £93 a week as it is, for something that isn't good enough for that money. Would you prefer me to sit at home on HB and not bother? I think it's a good idea and will encourage people to work and want their own homes, not merely accept the taxpayer will pay for abysmal council housing. It opens the door to something I thought I'd be excluded from and offers hope- I get excited thinking I could put my working years into something that will be mine.

brit1234

wiggywoo9 wrote: »

Well if it is scrapped before I can use it then I suppose I'll just keep working, paying rent that goes nowhere but hopefully have 10% deposit, which I can just use to get 90% mortgage. There's no other way of getting a long-term place to live- if I continue where I am, I'll go mad as its costing me £93 a week as it is, for something that isn't good enough for that money. Would you prefer me to sit at home on HB and not bother? I think it's a good idea and will encourage people to work and want their own homes, not merely accept the taxpayer will pay for abysmal council housing. It opens the door to something I thought I'd be excluded from and offers hope- I get excited thinking I could put my working years into something that will be mine.

You do realise this scheme is primarily designed to keep house prices high for the builders benefit. When people say they want to get rid of the scheme there intention is not to trap you out of home ownership. Far from it, they want artifically inflated house prices to be able to correct downwards so it is cheaper for you and others to buy.

The scheme is a scam, you are better off saving a bigger deposit and buying normally when prices are lower. That's a better alternative than instant negative equity and higher payments with Help to Buy.

74hotspur

I tend to disagree with the negative equity statement. If this is the case and the value of the house is in instant negative equity then the help to buy scheme will lose money head over foot. This is because you can pay lump sums off the equity loan at any time as long as its 10% of the current market value, so if a buyer went on the scheme saved like mad and then after 6 months had the house valued with an aim to pay 10% off of the equity loan they would be the winners as you would pay less than the original amount borrowed.
Just a thought.......

[Deleted User]

wiggywoo9 wrote: »

Well if it is scrapped before I can use it then I suppose I'll just keep working, paying rent that goes nowhere but hopefully have 10% deposit, which I can just use to get 90% mortgage. There's no other way of getting a long-term place to live- if I continue where I am, I'll go mad as its costing me £93 a week as it is, for something that isn't good enough for that money. Would you prefer me to sit at home on HB and not bother? I think it's a good idea and will encourage people to work and want their own homes, not merely accept the taxpayer will pay for abysmal council housing. It opens the door to something I thought I'd be excluded from and offers hope- I get excited thinking I could put my working years into something that will be mine.

The problem is home ownership is expensive, home ownership is not an alternative to renting. If someone can only just afford to rent then they cannot afford to buy somewhere. If something breaks in a rented place the landlord pays for it, if something breaks in your home, you pay for it. If you're just about making mortgage payments every month and you lose your job, how do you pay your mortgage? If you're just about making mortgage payments every month and your boiler breaks and you need to pay £3000 to replace it, do you live without heating and hot water?

Home ownership is a long term investment that needs to be considered very carefully, "I don't want to waste money on rent" is not a good reason to be looking into home ownership. Not wasting money on rent is an excellent advantage to home ownership but it should not be the reasoning behind home ownership.

The help to buy schemes don't give people that can't buy houses the option to buy houses, they reduce the amount of time it will take to enter ownership because the scheme reduces the amount of money needed upfront. The house will still cost the same to manage and the house will cost even more to pay off.

If you earn £20,000 per year (what you would need to earn to get a mortgage on a ~£100,000 house) you'll need to be financially capable of saving at least a few hundred pounds per month, while you are living in subsidised social housing if you save even more than that (let's say £400 per month) it would only take you an extra 18 months to save another £7200! If you started out on £20,000 a year and saved £400 per month for 3 years you would have almost £15,000, more than enough as a deposit for a house that you could afford to buy on £20,000: no need for any of the help schemes!

£20,000 per year is rougly £1,400 take home after tax, if you include tax credits and other government allowances you'll probably be taking home £1,600 per month.

£1,600 - £400 (savings towards deposit) = £1200.
£1,200 - £400 (roughly your rental costs) = £800.

£800 is more than enough to live on.

These schemes don't open the door to home ownership, they provide instant gratification ("I don't want to save for 3 years, that's too much effort!") and enable people not suited for home ownership to commit to something that will cause them no end of problems.

Something a lot of people do not realise: If you buy a house and then something goes wrong and have to sell it a few years later you will almost always lose money, because the cost of selling is high and the amount of equity you build at the start of a mortgage is low. Mortgages are a long term commitment, encouraging people not suited to doing so is really bad.

brit1234

74hotspur wrote: »

I tend to disagree with the negative equity statement. If this is the case and the value of the house is in instant negative equity then the help to buy scheme will lose money head over foot.

No the British Taxpayer will be if the buyer gets repossessed. Under Newbuy at least the builder was responsible for a portion of the lose, Help to buy removed this and put the hit on the tax payer. To make it worse the value of the property under Help to buy is far larger up to £600,000.

New builds tend to be marketed with a higher cost called the New build premium. They say they can charge more as everything is brand new unlike a second hand home. So when you buy a new build home it automatically now become used and loses a portion of its value just like a car for example. That's why lenders required a higher deposit on new builds to protect themselves. Mow if you only have a 5% deposit on a home already overvalued and about to lose the new build premium that 5% deposit can easily be wiped out leaving you in negative equity. This can be a major problem due to the lack of lenders supporting the scheme and if mortgage rates go up when you need to remortgage.

manzanilla

Oh and if its five years, will the scheme still be running- will I be saving for nothing?

I don't think I would give very good odds that the scheme will still be here in 5 years time. But saving is always good - it gives you options for the future. If not this scheme there may be another. Or you may want to move and rent somewhere else to get the job you want and that will cost money.

To be honest, as a single parent you need to be VERY sure that buying is right for you. You need a long term secure job. Because claiming benefits whilst you are renting is much simpler than when you have a morgage. And a lot of 'disasters' are the landlord's responsibility - roof problems, guttering leaks, bolier stops working etc. As a home owner you pick up all sorts of costs that you have to budget for.