Help to buy - quick calculation

welshwizard1927

Hello

I'd be grateful if someone could double check my maths relating to the help to buy (shared equity) scheme. We're familiar with the rules, requirements and charges etc, I'm just seeking someone' view on the following calculations:

House value = £175k
Deposit = £8750
Shared equity loan = £35k
Mortgage amount = £131250

After year 5:
If house value is £200k
Mortgage outstanding = £121905 (4.1% fixed 5yr)
Shared equity loan = £40k
Equity = £38095

on the assumption that the above figures are accurate (and acknowledging there may be fees/charges not taken into account above), an option to discharge the loan would be to remortgage at 80% ltv, but this would require an extra £2k for the necessary 20% LTV deposit.

Is that right?

Thrugelmir

And if house prices don't rise?

If you remortgage then the equity loan may well have to be repaid. Something else to consider.

TakeItAsRed

This could be a question unanswerable, but how will future mortgage lenders view HTB properties, that still have a outstanding EL when it comes to remortgage for example in 5 years time.

kingstreet

Currently there's one lender accepting shared equity remortgages, but you probably wouldn't want what it offers.

Nationwide won't accept a remortgage of a shared equity (SE) property if the interest payments are due to start in less than five years.

Customer retention products are going to be pretty much it for HTB - EL borrowers who don't want to remortgage to repay their equity loans.

I would be assuming your property value stays the same and you have no remortgage options.

I am asking our usual contacts for their views on their employers changing their stance on HTB - EL cases as we will be two years into the scheme in April and it's possible enquiries will start from then.

First job for any HTB - EL, FirstBuy or other SE lender with a Government element is to visit here;-

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

TakeItAsRed

so, potentially a 5 year EL from HTB, would ideally need repaying in 2 years as most HTB mortgages are for 2 years only. this obviously if you want to remortgage after 2 years, and switch lenders.

welshwizard1927

That's very interesting and helpful, thanks kingstreet.

I had wondered what the remortgage options are likely to be, and your list seems to be as much as I had expected. I guess, as you say, the question will be whether the position will change over the next few years - as H2B uptake increases, will there be a remortgage market out there.

For info, we are 99.9% of the view that H2B has some fundamental risks and therefore probably worth steering clear of, but I was doing calculations in my head this morning as I was trying to figure how this will all work out in a few years.

kingstreet

In the first instance you are going to have to look to your existing lender for a retention product as an alternative to SVR unless you are lucky enough to be in a part of the world where the "newbuild premium" doesn't exist; where your home may actually be worth more than the purchase price two years into ownership.

FWIW we are again advising clients who purchased newbuilds in Milton Keynes in 2013 who are selling at a profit they are putting to their next newbuild purchases.