Help to buy scheme. Maximum deposit size

Offshoretom

Hello all,

I (seemingly like many others) have been looking into the help to buy scheme recently.

Whilst it is clear that people can now buy with a minimum of a 5% deposit with the government picking up 20% of the value of the property to help you have a 25% deposit (and therefore better mortgage rates), it is unclear whether the buyer could contribute a larger proportion of the deposit.

I am currently in a position where I could at a stretch afford a 20% deposit on a 200k house from my own savings. Could I then use the help to buy scheme and the governments 20% to boost my deposit to 40% and allow me access to the most competitive mortgages?
Or is it a case that the maximum deposit achievable with HTB is 25% and as I increase the size of my deposit, the government will proportionately decrease theirs so that the total never exceeds 25%?
Any info would be much appreciated, most of the blurb I can find online focuses on the minimum required deposit rather than the maximum.

Also if 25% is the maximum available would people suggest I save longer to make this deposit entirely from my own funds, or take the governments 20% and keep my money in the bank for a rainy day?
Hope this makes sense!

Tom

kingstreet

You are buying a newbuild, as the Help To Buy - Equity Loan scheme is for newbuilds only;-

http://yournews-legalandgeneral.com/pv_obj_cache/pv_obj_id_BB320F8298FC1120B8826B44DE0AD12E294C0800/filename/Help%20to%20Buy%20Definition%20Budget%202013.pdf

On the HTB - EL scheme, you can put down more deposit, if you choose. You must borrow at least 25% of the price of the property by mortgage.

Offshoretom

Thanks for the reply,

Yes so assuming the house is a new build built by a registered Help To Buy builder, 25% would be the minimum deposit and there would be no limit on the maximum?
This would be very good news as it could help me have access to the best mortgages!

Unfortunately the link you sent in your last message does not work. Could you resend or tell me where/what to search to find this page.

Thanks in advance,

Tom

kingstreet

5% is the minimum deposit, on top of the equity loan. So the maximum mortgage would be 75%.

As long as your mortgage is at least 25% of the purchase price, you can put down upto 55% as your own deposit;-

25% mortgage
20% equity loan
55% deposit
____

100% purchase price.

The HCA HomeBuy Agent will expect you to be borrowing towards the top of your borrowing power, assuming 4.5x income, 45% debt to household income ratio and assuming a 4.8% mortgage rate.

They can scale back your application to 10%, or even nothing, if it appears you can afford to purchase on your own, but I've not seen this happen in dozens of cases.

If you want a copy of the HTB - Calculator (Excel file) PM me your email address and I'll send you one.

The link is to a comparison between the two HTB schemes, EL and MG but as you appear to be purchasing a newbuild, it is EL to which we refer. It's working fine for me. Is anyone else having a problem?

leccyblue

There's plenty of info here;

https://www.gov.uk/affordable-home-ownership-schemes/help-to-buy-equity-loans

Bear in mind that although you'll have access to better mortgage rates, you'll also have an equity loan to pay back. Fees don't start until after 5 years, but then you pay a percentage each year, which doesn't reduce the capital. You can opt to pay capital, but there are restrictions and you have to pay back an amount based on the CURRENT market value, based on the percentage of equity loan you took. So, if you used the full 20%, and wanted to pay it all back in 10 years time, you'll need to pay back 20% of the CURRENT value of your home, as essentially the government own a 20% share in your home.

Over the full mortgage period you'd be better off with a mortgage at a higher LTV to begin with. Obviously you can change product / remortgage to a different lender as your equity increases, and therefore your LTV decreases.

If you have the relevant % deposit (usually 15% on a newbuild) then I can't see how HTB-EL gives you any benefit.

tasty_snacks

I was wondering the same thing about the H2B - MG scheme.

It's geared to 95% LTV, but the rates are better with a 'standard' 90% LTV retail mortgage. The wife and I have nearly reached our 10% deposit target, so it's well worth waiting a tad longer and getting a standard 90% LTV deal.


But, are there any plans to extend the H2B - MG to bigger deposits of 10%, or even 15%? The premium charged to lenders would be proportionately lower, so one would assume that H2B - MG rates would undercut the current retail mortgage rates available.

kingstreet

In practical terms, the guarantee always means the rate will be higher than it would be for the non-guaranteed mortgage. At 80% to 85%, the fee is 0.4% on the rate, enough to tip it over the competitive precipice, IMHO.

If it looked like a potential seller, the lenders offering HTB - MG would be offering it, and they aren't.

tasty_snacks

Cheers KS.

I'm surprised that the Government fee to the lender is a flat 0.4% on the rate, regardless of the amount of deposit available to the buyer, rather than adjusted according to the deposit a buyer stumps up. Logically it should amortise to 0% for a 20% buyers' deposit - i.e. the MG fee on a 10% deposit should be 0.27% (as Govt is only guaranteeing 10% as opposed to 15%).


Still, it's not aimed at those with >5% deposits I suppose, and there are enough options available at 90% on the open market.

kingstreet

It's 0.3% (sorry, mis-read) on a LTV of 80% to 85%, 0.4% on 85% to 90% and 0.9% on 90% to 95%.

So, if you want 95%, the guarantee costs 0.9% on the rate for the whole mortgage, for the 15% between 80% and 95%.

It's the amount the lender pays the Government for the indemnity fund which will cover repossession losses.

humphry

I'm not sure I agree with this point. Surely there IS an advantage in having an additional 20% paid by this scheme even if you can afford a large deposit.

Option a) I can chose to live in a £480k house if HTB puts in 20% or, Option b) I can afford to live in a £380k house if I fund the whole deposit myself. Option a) means that I spend 25 years living in a £100k nicer house.

I appreciate that I don't gain any share of the government's 20% but I will still get all the increase of the remaining £380k which is all I had to invest anyway.

Am I missing something?

kingstreet

Are you missing that you'll start paying annually increasing fees from the beginning of year six AND you'll hand over 20% of the growth of the value of your home to HMG?