Does using a help to buy equity loan provide better mortgage deals?

[Deleted User]

From what I understand of mortgages the more contributed by the borrower the lower the cost of the mortgage in the form of better interest rates. For example a person borrowing £90,000 on a £100,000 property purchase will have a higher interest rate than someone borrowing £50,000 on a £100,000 purchase.

If that is correct: does that mean someone purchasing a £100,000 property would be better off taking the help to buy equity loan which would reduce their required mortgage down to 75% if they only had a 10 or 15% deposit?

Any considerations I've missed? Does the cost of the equity loan eat up any potential savings in the reduced mortgage cost? Do mortgage providers have fixed deals for help to buy borrowers that match the deal a person with a 10% deposit would get without help to buy?

(This is a hypothetical question that I can't find an answer to, I don't have a mortgage advisor to ask because I'm not buying)

kingstreet

If they have a 10% or 15% deposit, with a 20% equity loan, they'll only need a 65% or 70% mortgage and will get a better rate accordingly.

As the equity loan is paid back later, based on 20% of the value of the property at the time, not at purchase it's difficult to know if this will prove more or less expensive.

The equity loan fees start in year 6 and start at 1.75%, increasing each year. If inflation runs at 5%, it will be 1.87% on year seven, 2.0% in year eight and so on.

An exit strategy is essential for anyone taking HTB - Equity Loan.

This is only available on newbuilds, just in case you are confusing it with HTB - Mortgage Guarantee.

Wallhart

I thought if you had the cash for a 10% mortgage you did not qualify for help to buy

kingstreet

HTB - EL doesn't work like that.

The equity loan is based on how much mortgage you can afford, using the 4.5x income and 45% debt to income ratio.

So, if you can afford to borrow £100,000 maximum and want to buy for £200,000 you can get a £40,000 equity loan and put down £60,000 deposit.

The only proviso, is you must borrow at leaast 25% of the purchase price.