Help to Buy - Paying it Back

Atirez

Hi all, I have been thinking about setting myself up in the future to buy a house and have been looking around at the various schemes that could help me achieve this.

However there are some things that I am not sure about with the "Help to Buy" scheme. Namely, paying it back.

As I have found out at the moment details discuss the fees that you pay for the first 10 years. What happens after this? But I have not found out if it is possible to pay this back outside of selling your home. If I wanted to buy the 20% equity the government owns in a mortgage I get under this scheme how do I go about that? Are there any details of doing such a thing?

Also I am not sure it is a good idea for me to get on this scheme because of the potential this scheme has to inflate house prices and keep a market, that in my head needs to come down a little, up. And, if it is actually financially a good idea. Beyond getting better interest rates - what are the financial benefits?

I have searched the forums but have been unable to extract answers to these particular questions. Can anyone shed any light?

kingstreet

Are you buying a newbuilld?

If not, there is no equity loan.

Here's a link to the Buyer's Guide, if you are;-

http://www.homesandcommunities.co.uk/sites/default/files/our-work/help_to_buy_buyers_guide_sept_2013.pdf

and here's a link to the body which controls post-sales issues such as repayments;-

http://www.myfirsthome.org.uk/

Atirez

Ah OK, so staircasing is paying back:

"
1. Staircasing:

Staircasing is the process of repaying either a proportion of the loan you received, or the
loan in its entirety, without selling the property. Under the terms of the loan:

 You can staircase at any time after completion.
 The minimum amount you can staircase at one time is 10% of the current value of
the property.
 The HTB loan may not be worth less than 10% after you have staircased. Therefore,
if the HTB loan is currently worth less than 20% you can only staircase the loan in
full.
 You may only staircase in multiples of 10% unless you are staircasing in full.
 You cannot staircase if you are in arrears with your monthly Help to Buy payments (if
applicable)."

It would be a new home. Hmm, since after a buying a new home it will be worth less on the market than I paid for it, perhaps there is some potential with paying this back immediately and saving a bit of money.

MoneySaverLog

Yes you can pay the equity loan back at anytime on a help to buy loan between buying and selling the property, only stipulation is that it is paid back before the mortgage ends.

You have to get a valuation done at the time you wish to pay it off so they can work out how much you owe them as remember it will be a % of what the valuation will be when you settle the loan.

You could probably in year 5 (before the charges come in) ask for a valuation to be done and then pay back the equity what it will be then. If prices go up, then you end up paying more back. If they go down then you end up paying less back. The ideal will be they stay the same. :-)

You could potentially re-mortgage to absorb some of the equity to pay back then too if prices go up along with salary. Best thing will probably be to save what you can and aim to pay that back whilst rates are low and you lock yourself into a good fixed term rate for the expected life of the equity loan (if you plan on paying it back in 5 years).

Atirez wrote: »

Also I am not sure it is a good idea for me to get on this scheme because of the potential this scheme has to inflate house prices and keep a market, that in my head needs to come down a little, up. And, if it is actually financially a good idea. Beyond getting better interest rates - what are the financial benefits?

Whether you get on the scheme or not, the market will do it's own thing, up down or stay the same. My personal view is with the government extending the length of the scheme it can only really go one way in the next 5 years with the shortage of new builds available.

dgtazzman

We're moving into a HTB equity loan new build next month. The paperwork only illustrates the fees for the first 10 years, but they keep going up by the same % each year after that. The loan must be repaid after 25 years or when the house is sold, whichever comes first. It can also be repaid at any other time as long as you either pay half of the equity loan or the full loan (so 10% or 20% of the property value). When you go to repay, you pay a fee (I believe something like £200) for the property to be valued by a surveyor to determine how much you must repay.

From my calculations, the equity loan repayments are cheaper than mortgage repayments on the same amount for the first 10 years or so, if the mortgage rates don't go up. Of course, the property will go up in price in those 10 years, so the longer you wait, the more you will likely end up repaying.

Personally, I intend to overpay on the mortgage for the first 5 years ( I can comfortably afford to overpay at least 3% a year if not more), with the intention to remortgage at that point to free up equity to repay the HTB loan and still be under the 70% LTV ratio. After 5 years, you will have paid back 20% of the mortgage, the value of the house will likely have gone up (all be it slightly, as it is a new build), that in combination with overpayments on the mortgage, will hopefully mean this can work, but we shall see in 5 years time...

kingstreet

dgtazzman wrote: »

The loan must be repaid after 25 years or when the house is sold, whichever comes first

Sale of property or end of mortgage term, whichever is the shorter. The term is not limited to 25 years.

dgtazzman

True, but isn't the mortgage term limited to a maximum of 25 years when using HTB, unless you can argue a good case to extend this term based on affordability? You could have a shorter mortgage term of course.

kingstreet

No. I'd say most of our business is longer than 25 years and you do get a few under that too.

We supply a copy if the affordability calculator with the PIF & Res and we've never yet had one queried when we state it's for affordability reasons, as it invariably is.

CLAPTON

dgtazzman wrote: »

We're moving into a HTB equity loan new build next month. The paperwork only illustrates the fees for the first 10 years, but they keep going up by the same % each year after that. The loan must be repaid after 25 years or when the house is sold, whichever comes first. It can also be repaid at any other time as long as you either pay half of the equity loan or the full loan (so 10% or 20% of the property value). When you go to repay, you pay a fee (I believe something like £200) for the property to be valued by a surveyor to determine how much you must repay.

From my calculations, the equity loan repayments are cheaper than mortgage repayments on the same amount for the first 10 years or so, if the mortgage rates don't go up. Of course, the property will go up in price in those 10 years, so the longer you wait, the more you will likely end up repaying.

Personally, I intend to overpay on the mortgage for the first 5 years ( I can comfortably afford to overpay at least 3% a year if not more), with the intention to remortgage at that point to free up equity to repay the HTB loan and still be under the 70% LTV ratio. After 5 years, you will have paid back 20% of the mortgage, the value of the house will likely have gone up (all be it slightly, as it is a new build), that in combination with overpayments on the mortgage, will hopefully mean this can work, but we shall see in 5 years time...

after 5 years of a 25 year mortgage, you will only have paid about 12% of the capital back depending upon the interest rate you are paying
(20% would only be true if the interest rate were zero)

dgtazzman

Ah well, fair enough, haven't bothered doing full calculations yet, but still seems a workable plan (minimum 15% from overpaying, 12% repaid, 5% own deposit, hopefully house value increase). I'll just keep my fingers crossed 5 years from now we can pay them back and get the second charge off the house, while still getting a decent mortgage rate.