Paying back the Government Help to Buy loan

justtinw

I need some guidance and was hoping someone could help.

I am just about to buy a flat on the new HTB scheme. The purchase price is £420,000 and my mortgage will be for £315,000 with the Government paying £84,000 and me obviously paying the £21,000 gap.

I want to pay back the £84k ASAP, as this amount is actually a 20% stake in the flat, and can increase. The new flat is in a part of London where house prices are increasing, and have been throughout the housing ‘crisis’. The mortgage is a 3.15% fixed for 2 years where 10% overpayments are allowed.

I have 2 options and I don’t know which to do:
1. Overpay my mortgage by the maximum amount each year (£31,500 in year one) and (£27,600 in year 2), remortgage at end of year 2 and use this extra money to pay some of the loan off (with potentially some extra savings)
2. Pay the minimum payment of the mortgage (£1,350) and save the additional £2,650 and pay this off the government loan as a lump sum in year 1 (as you are only permitted to pay money off the loan at yearly anniversaries) and then do the same in year 2 and 3?

Am I right in thinking that it’s best to do option 2 in stages to minimise the impact of any potential house price gains, and also that if house prices rise by more than 3.15% this would also indicate that its better?

Apologies if I am not making sense and happy to give more info.

shop-to-drop

From what i have understood each time you make an overpayment you have to pay for a valuation on the property. So my thoughts are that it's not worth overpaying until you can pay off in full. So maybe get into a position when you could remortgage to pay off the help to buy at a certain point.

justtinw

I was thinking I could just overpay each month into the mortgage, for example pay £4k a month. So do you think I should save the money and lump pay into the mortgage?

dimbo61

How long before you pay Interest on the Help to Buy Loan ?
Is it interest free at the moment?
On the GOV.UK website it talks about not paying any fees in the first 5 years
It also states you can pay back 10% or 20% of the loan and the Agent will contact you about setting up payments from your bank.
Now I see little point in paying off an Interest free loan early!!!
I would look at over paying the mortgage and building up savings in cash ISA,s so you have a lump sum to pay off the 20% at the end of the Interest free period.
Well done if you can save £2650 each month as this is £159,000 over 5 years before you ADD interest.
You would need to save about £1400 each month to clear the £84,000 at the end of the 5 years.
This would also give you a better LTV when you look at remortgaging
Good Luck

justtinw

Thanks Dimbo61

Loan is interest free for 5 years - however the loan is as a % so the reason I thought it would be good to clear the intrest free loan is because I am worried about the house rising in value too much and the £84k becoming £100k before I know it?

For example hous prices have risen 4.52% in the last year and 7.71% over last 2 years. A 7.7.% rise would equate to a £32k rise in the loan. According to zoopla data (cant post link)....

I suppose what I can't figure out is - 'is the saving in motgage interest worth more than a potential increase in the loan amount.' This could be more of a question around whether peope think the market is going to continue rising like this or not too.

Arghhhhhhh......

dotdash79

Might be worth saving it and then once you have the money you think you need getting a valuation. Then you would have a better idea of where you stand.

amnblog

Save it first, then check what the house prices are doing, then decide what is best.

grey_gym_sock

i wouldn't overpay a mortgage when you'll want the money back again in a short time, because mortgage criteria might change, and leave you unable to take the money out again. (unless you had an offset or similar mortgage, with the right to take overpayments out again.)

Thrugelmir

justtinw wrote: »

Am I right in thinking that it’s best to do option 2 in stages to minimise the impact of any potential house price gains, and also that if house prices rise by more than 3.15% this would also indicate that its better?

If you can afford option 2 then you may fall foul of the qualification rules. As saving for a reasonable deposit should not be a problem for you. £21k would hardly take you any time at all.

shop-to-drop

Thrugelmir wrote: »

If you can afford option 2 then you may fall foul of the qualification rules. As saving for a reasonable deposit should not be a problem for you. £21k would hardly take you any time at all.

What qualification rules are those. I was told by an advisor linked to a developer that it didn't matter if you already had a sizeable deposit you were still able to get a help to buy loan. He put all our details through the system including a deposit of £150k for a £460k house. Have the rules been modified?

justtinw

It would be very difficult for me to save enough without the scheme. So I am very grateful.

I'm self employed and buying a new build house so need a 25% deposit, which is an awful lot of money. Plus the stamp duty etc...

I have been accepted anyway.

Thanks for all you advice. I will save the money and assess the situation each year.

Thanks again.