Help to Buy - Paying back equity loans

tulula123

Hi sorry if this has been posted elsewhere I couldn't find a thread on it.

What are people's views on starting to pay back the Governments equity loan during the first 5 years interest free period? Should we set up monthly payments or save the money and pay a lump sum after the first 5 years are up?

gazzabboi

You can't set up payments, to pay the loan back you will need a valuation, then based on the %age at that time is how much you will pay back. Ie if you initial borrowed £10k, then after 5 years your house went up 10% in value, you would owe £11k. Just save up, then maybe remortgage.

Erisu

gazzabboi wrote: »

You can't set up payments, to pay the loan back you will need a valuation, then based on the %age at that time is how much you will pay back. Ie if you initial borrowed £10k, then after 5 years your house went up 10% in value, you would owe £11k. Just save up, then maybe remortgage.

But that's only if you decide to sell the property, then you owe them £10K plus 10% of the increased value after valuation? But if you don't sell your property after the first 5 years then you'll just need to pay back the £10k you borrowed month by month with interest? That's at least how i understand it reading through my documents?

gazzabboi

It doesn't work like that. What they are doing is lending you the equity in your house, it doesn't matter the amount, its the percentage. If at any time you want to fully redeem your loan, you will pay the % back based on a valuation. If your house loses value, then the loan will also be less. Yes if you decide to partially redeem your loan after 5 years, I guess it will be the same as what you originally borrowed, but you have to factor in the interest you will be paying.

kingstreet

You can only pay it back in lump sums. There is no monthly payment facility for the loan capital. Only the fee which starts in year 6.

Erisu

gazzabboi wrote: »

It doesn't work like that. What they are doing is lending you the equity in your house, it doesn't matter the amount, its the percentage. If at any time you want to fully redeem your loan, you will pay the % back based on a valuation. If your house loses value, then the loan will also be less. Yes if you decide to partially redeem your loan after 5 years, I guess it will be the same as what you originally borrowed, but you have to factor in the interest you will be paying.

Thanks for replying gazzabboi.

So after the 5 year interest free period has ended. Are you saying they will run a value on the property and if it has increased in price, Help to Buy applicants will need to pay back 20% of the market price even though they are not selling their property?

kingstreet is right. You can only pay back 10%, 20% or all of the loan when you want to. I hear a lot of people saying it's best to pay off as much as your mortgage as possible within the first 5 years then incorporate the loan into your mortgage when you re-mortgage as the loan has a lower interest rate than a mortgage rate.

kingstreet

My interpretation of the HTB Guide, which may be completely inaccurate is as follows;-

- you repay the whole equity loan on sale - percentage of sale value

- you repay the whole equity loan at the end of the 25 year maximum term - percentage of property value

- you repay the loan voluntarily by staircasing - you can repay your 20% loan in two 10% chunks based on percentage of property value.

http://www.orbithomebuyagents.co.uk/mediaFiles/downloads/49696872/Help%20to%20Buy%20Buyers%20Guide.pdf

Can I redeem my equity loan in part, sometimes known as “staircasing”?

The Help to Buy scheme allows you to repay all or part of your equity loan. A partial repayment is often called “staircasing’.
Staircasing payments can be made at any time and must be a minimum of 10% of your home’s prevailing market value – whether that value is more or less than when originally purchased.

ValHaller

kingstreet wrote: »

Can I redeem my equity loan in part, sometimes known as “staircasing”?

The Help to Buy scheme allows you to repay all or part of your equity loan. A partial repayment is often called “staircasing’.
Staircasing payments can be made at any time and must be a minimum of 10% of your home’s prevailing market value – whether that value is more or less than when originally purchased.

Taken literally, if you pay back more than the 10%, you could never be permitted to pay the rest off .... ?????

gazzabboi

Erisu wrote: »

Thanks for replying gazzabboi.

So after the 5 year interest free period has ended. Are you saying they will run a value on the property and if it has increased in price, Help to Buy applicants will need to pay back 20% of the market price even though they are not selling their property?

kingstreet is right. You can only pay back 10%, 20% or all of the loan when you want to. I hear a lot of people saying it's best to pay off as much as your mortgage as possible within the first 5 years then incorporate the loan into your mortgage when you re-mortgage as the loan has a lower interest rate than a mortgage rate.

If you want to staircase and pay back 10%, you pay for a valuation £200 ish, then you will pay whatever the percentage comes to. Makes no odds if you are selling up. My advice would be to pump as much cash as you can into your mortgage in the 1st 5 years, then you will hopefully be able to remortgage and buy back the 20% you borrowed. It all comes down to what the bank interest rates are in 5 years and what your property is worth in 5 years whether you are best off doing this though.

tulula123

Thank you for all the responses it's given us something to think about.