Help to buy

quantic

I have been trying to get my head around Help to buy for a while now but don't quite understand how some of it works. I understand that you put down 5% deposit, the government put down 20% and you get a mortgage for the remaining 75%.

After the first 5 years have expired you then begin paying interest on the government loan portion of the deal (20%) - the interest is broken up as 1.75% fee + RPI (currently 3% ish) + 1%.. so lets say 6%...

So... do you begin paying 6% on the loan at this point, in the same way that an interest only mortgage works, or do you have to repay the loan within a set period, or do you pay it off over the period in which you own the house, so in theory it could be 20 years? That seems bizare and very expensive.

Can someone with a bigger brain please explain it

kingstreet

You are misunderstanding the payment system first.

From year six, you pay 1.75%pa on the equity loan. For example a £40k loan would see you pay £58.33 per month.

In year seven, the rate increases BY inflation + 1%, so a rate of 5% would see the rate increase to 1.87%pa, so your payment would then be £62.33.

In year eight, with the same RPI, it would be 2.0%, or £66.66 per month and so on.

Now, your next issue.

You do not pay off any of the loan capital in monthly or annual payments. You repay 20% of the value of the property at the time, when;-

- selling the property
- by voluntary lump sum payments
- at the end of the mortgage term

so yes, it is similar to an interest-only mortgage and you must have an exit strategy in place to deal with the equity loan.

Kraecki

I am also interested in help to buy and was wondering if you have to get a 75% mortgage or would it be possible e.g. to get a 60% mortgage, 20% government loan and a 20% deposit?

I don't think that is possible but wanted to hear somebody else's opinion.

quantic

Ok so let me see if I understand. Lets say I buy a house for £175,000 over 25 years @ 5%. The deposit would be £8,750, the government would put in £35,000 and the mortgage would be for £131,250.

So the payments for the first 5 years would be mortgage only at £776.04 and after 5 years it would be £776.04 + £51.04 (35k @ 1.75%).

So the total payment would be £827.08 year 5 and increasing incrementally as you described.

quantic

Kraecki wrote: »

I am also interested in help to buy and was wondering if you have to get a 75% mortgage or would it be possible e.g. to get a 60% mortgage, 20% government loan and a 20% deposit?

I don't think that is possible but wanted to hear somebody else's opinion.

"Who will be eligible? Anyone with a deposit of less than 20%, on any type of home. Of course, you still need to meet lenders' criteria to get a mortgage, which is largely around your income and credit history."

The above is quoted from the newbuy info site.

kingstreet

Kraecki wrote: »

I am also interested in help to buy and was wondering if you have to get a 75% mortgage or would it be possible e.g. to get a 60% mortgage, 20% government loan and a 20% deposit?

I don't think that is possible but wanted to hear somebody else's opinion.

You get the amount of mortgage you need. It has to fit within the guidelines. As long as it fits the HCA Affordability calculator, it's fine.

I'm working on a case for someone who earns £13k. That's a £170k purchase, £34k equity loan and £87k deposit.

kingstreet

quantic wrote: »

Ok so let me see if I understand. Lets say I buy a house for £175,000 over 25 years @ 5%. The deposit would be £8,750, the government would put in £35,000 and the mortgage would be for £131,250.

So the payments for the first 5 years would be mortgage only at £776.04 and after 5 years it would be £776.04 + £51.04 (35k @ 1.75%).

So the total payment would be £827.08 year 5 and increasing incrementally as you described.

Yes. You pay only the mortgage for five years.

You start to pay the equity loan "fee" from the beginning of year six. You pay the HCA HomeBuy Agent tasked with "after sales" issues, which is Metropolitan in London.

Each year, the amount will increase slightly as described above.

Kraecki

kingstreet wrote: »

You get the amount of mortgage you need. It has to fit within the guidelines. As long as it fits the HCA Affordability calculator, it's fine.

I'm working on a case for someone who earns £13k. That's a £170k purchase, £34k equity loan and £87k deposit.

Sorry I tried to find this HCA Affordability calculator online and could not find it. On which website is it?

quantic

kingstreet wrote: »

Yes. You pay only the mortgage for five years.

You start to pay the equity loan "fee" from the beginning of year six. You pay the HCA HomeBuy Agent tasked with "after sales" issues, which is Metropolitan in London.

Each year, the amount will increase slightly as described above.

Thank you for taking the time to explain that, most of the websites which talk about it do not explain the equity loan in any detail.

:beer:

kingstreet

I don't get much choice.

I'm dealing with two or three a day. The builders email us the reservation and part-filled PIF, we add the remaining stuff and email them on to Catalyst and Orbit the two HomeBuy Agents for our areas.

I just wish the builders would fill things in in thick black ink as the PIFs are always coming back illegible and have to be done again.

Anyway, rant over!

kingstreet

Kraecki wrote: »

Sorry I tried to find this HCA Affordability calculator online and could not find it. On which website is it?

It isn't. It's an excel spreadsheet. We have one because we are doing these cases all the time.

If you want a copy, PM me your email address and I'll send you a copy.