Help to Buy - My Understanding

MoneySaverMick

HiAll,

I’mjust wanting to understand and confirm how I perceive the Help to Buy EquityLoan scheme. I'm going to work off buying a new build for 100k to keep the calculationssimple and as a First Time Buyer.

Forinstance, you choose the home and visit the builder to start off the process.You first require to have a DIP from your lender and then you apply for theHelp to Buy Scheme, on acceptance you then make the formal mortgage application- correct?

So then in termsof actual payments and how this would work….


On a £100k houseyou’d need to put £5k down as a deposit. The equity loan then provides £20k tomake up the rest of the deposit therefore you require a mortgage for 75% (£75k)value of the property. So if you aim to pay off the equity loan within the 5years where it is interest free you would place £333 a month (60 months) intosay a cash ISA and then just before the end of the 5 year period you would thenuse that money to pay back the equity loan?


Not forgettingthat if you did aim to do this and pay off the loan in 5 years you would bepaying this alongside your actual mortgage payments. I’ve just done a quicksearch for a mortgage based on the above and as an example if you took out a 5year fixed mortgage with your lender over 20 years with the rate at 2.6% yourmonthly mortgage repayment would be £400. So now to visualise this over 5 years:



Mortgage Repayments
Interest Paid
Owed at end of year
Year One

£4,800

£1,950

£72,150

Year Two

£4,800

£1,876

£69,226

Year Three

£4,800

£1,799

£66,225

Year Four

£4,800

£1,722

£63,147

Year Five

£4,800

£1,641

£59,988

So asabove including both your mortgage and equity loan repayments you’d be paying£733 a month for the first 5 years? And at the end of year 5 you’d owe £59,988(59.98% if valued the same) on the property?


If I’veunderstood this correctly it sounds like a great scheme. And looking at theexample it looks as though if the property value remained the same when youcome to re-mortgage and the end of the 5 years you could possible get access tothe 60% LTV mortgages which you would likely get an excellent rate??


Can oneof the experts clarify this for me please? And also make comments or additionsif I have inevitably missed anything.


Thanksalot

kingstreet

You have to meet both the HCA's affordability model and the chosen mortgage lender's. The HCA version uses 4.5 x income, 4.8% mortgage rate, 45% debt to household income ratio and the minimum mortgage is 25% of the purchase price.

It's a minimum deposit of 5%. You can use a larger deposit if you wish.

Lenders factor 3% or 4% of the equity loan into affordability for the mortgage.

You can repay a 20% loan in two 10% chunks, or one 20% chunk and it's based on the property value at the time of repayment, not the £ amount you borrowed initially.

Not much more to know. Buyer's Guide here;-

http://www.helptobuy.org.uk/docs/default-source/default-document-library/help-to-buy-equity-loan-buyers-guide.pdf?sfvrsn=4

MoneySaverMick

Thanks great Kingstreet!! Never knew any of that.

I initially thought keeping the money your saving to pay off the equity loan in a cash ISA would be best thing to do then pay it off just before the end of the 5 years.

However I think it's key to take into consideration the actual value of the house at the time.

GoldenShadow

Love the big example in the OP, exactly how my brain works so really helpful, thanks OP

Just wanted to jump in and ask a question on this topic.

If the 20% is the value of the house, say you buy a new build for this 100K and after five years its work 90K. Would they really only want 18K back, or is there a clause for it to be 20%/original value whichever is highest?

kingstreet

Yes. If the property value falls, you pay back less than you borrowed.

HereHareHere

Can I ask where you found the 2.6% mortgage rate?
Best I've seen for Help To Buy is 2.99%

Thanks

MoneySaverMick

I really wish I could point u in that direction I just used that as an example when I done at LTV 75% search on Money super market. Not specifially Help to Buy

kingstreet

MoneySaverMick wrote: »

I really wish I could point u in that direction I just used that as an example when I done at LTV 75% search on Money super market. Not specifially Help to Buy

In which case how can you be sure;-

the lender accepts HTB Equity Loan cases

the product in question is available on HTB Equity Loan cases if the lender does accept them?

The bulk of the lenders on the scheme have specific HTB products and you can't simply choose a 75% LTV product.

MoneySaverMick

Yes the purpose of the rate was purely for calculations, the specifics products available are quite likely to be around the 4% mark for HTB.

kingstreet

Products range from about 1.75% for the lowest two year fixed, to about 4% for a ten year.