Should I take less than full 40% HTB?

bhavinshah

Hi All,

Question: should I opt to take a higher mortgage in place of the 40% equity loan on Help to Buy London if I can afford to?

Background (example):

Total property price: £450k
Deposit: £100k (for example)
Govt equity loan: £180k (40%)
Mortgage required: £170k

But what if my income allows me to borrow more than £170k? For example, if I can should I borrow an extra £45k and reduce the equity loan element down to 30%?

I *believe* it's possible to do this because the wording on the HTB website refers to "up to 40%".

I'm currently thinking the following pros and cons but would appreciate anyone's thoughts.

Pros to opting for higher mortgage/lower equity loan

- Will retain more of the upside if prices increase in the coming years
- Lower amount to pay interest on after the 5 year interest free element is over - this will be at 1.75% and then the % increases by RPI+1% each year, so I can imagine that cost ramping up pretty quickly
- Likely to be harder to buy out govt's loan in 3-5 years if prices increase, this allows me to own more upfront.

Cons for opting for higher mortgage/lower equity loan

- Higher monthly mortgage cost - exposes me to more risk today
- Interest element not really an issue if I intend to sell in approx 5 years (possibility)
- Will incur more of the downside if prices decrease in the coming years

Probably missing a few factors...happy to hear your thoughts.

Cheers!

amnblog

You have just got it Bhavin. Not much more to say.

gsmmad

It all depends if you would like to bet for or against house prices.

Either way you are taking a risk and only time will determine the correct choice.

Thrugelmir

Is a £350k mortgage affordable?

You'll pay all the stamp duty due. - £12.5k.

You'll pay all the costs when you to sell in 5 years time.

bhavinshah

Unfortunately £350k isn't affordable otherwise would definitely have skipped on HTB. From a couple of enquiries I think my max is £220k, so along with deposit still well away from total price!

And I guess the other upside to getting a smaller mortgage/higher equity loan (i.e. not maxing out my mortgage) is more comfortable repayments...!

Rich2808

Why not take the free 40 per cent for five years and remortgage then. No point paying interest when you don't need to - and you reduce your risk if prices fall.

gsmmad

but increased risk if prices rise....