Helptobuy after 5 year advice

SavingWolf

Hi,
I am currently in the progress of looking at different mortgages and houses and am in two minds about the help to buy on new builds.

The nice side is that the payments will be lower with the governments input and we could buy a nicer house now than without it.

My main concern is after the 5 years - what happens then? I have read interest is paid on the loan yearly and this increases, if we took £50,000 on help to buy what would the interest payments look like?
Also slightly concerned that we will obviously have to pay this money back at some time and this would most likely need to be done by means of another loan or equity release when remortgaging in the future.

Could anyone provide advice either positive or negative please?

Thanks

brit1234

After the 5 years they charge you a small interest rate rising by RPI. That's not the main problem, that will be when interest rates rise and negative equity if/when house prices fall.

The scheme is designed to help builders charger a higher price not help 1st time buyers.

dgtazzman

Well, that's a bit offputting, but the equity loan is tied in to the property value, so if the value falls, so does the sum of the equity loan on repayment, i.e. it isn't a nightmare if prices fall, which I very much doubt they will (also historically this is unlikely to happen). Also the repayments after 5 years are tied to inflation, not to the BOE base rate, giving it a bit more of a safety factor.

The difficulty lies more in continued rapid house price rises if you don't intend to sell the HTB property, it means you'll have to fork out more money to repay the equity loan. If you sell the property, it doesn't really matter, as you'll be benefiting from the higher property price, but if it is going to be a forever home and you intend on paying off the HTB balance asap, it becomes a different matter. If we hadn't been able to use HTB, we probably would have been renting for 2 more years, those are 2 years we can start building up equity in our own home now, instead of helping the landlord do the same for his house.

If the mortgage interest rates go up, it might be more interesting to keep the equity loan in place for a long time, repay the interest on that and overpay on your mortgage, but that is crystal ball territory. Even with these historically low mortgage rates, for the first 10 years or so, as far as interest goes, the HTB loan interest is going to be lower than the mortgage interest, but if house prices keep going up by 10% a year, the equity loan amount you have to repay will have doubled.

It's not a flawless idea and it is made to help the builders, but it will help people onto the property ladder too, as long as they know what they're getting into and are advised correctly on how best to proceed over the years.

P.S. To help you get an idea of the charges, our equity loan is for 40k, interest payable in year 6 is estimated at £58 a month, at year 10 it's £74 a month.

SG27

Problem with help to buy is that before new build flats near me were £165k now same development very similar flats £185k.

So help to buy has instantly cost an extra £20k!