Help To Buy Questions

Flixton86

Hello,

I have seen a new build property that we would really like to purchase, valued at £286,950. We are undecided to purchase the house using the HTB equity loan, or to follow the traditional method.

Not using the HTB scheme would mean we would not have much money left over as we would need to increase our deposit substantially (we currently own our house which we would need to sell first - most of the deposit is equity in the house).

If we went the HTB route we would have more money left over, but I am concerned about the £57k debt we would have to the government, which is likely to increase over time.

My question is re-mortgaging at the end of the first 5 year period.

Say we bought the house for £286,950 (£194560 mortgage, £35k deposit, £57k equity loan).
During the 5 year period assume we clear £30k off the mortgage and the house increases in value by 15%.
Would it (in theory) be possible to re-mortgage for c£230k and revert from a HTB mortgage to a traditional mortgage?

Apologies if this is a stupid question, but is that how it is supposed to work? It seems madness not to get rid of the HTB loan ASAP, if it is not madness taking it out in the first place! The only way I can see possible to clear it is via re-mortgaging, which is a risk as to the situation I will be in in 5 years I appreciate.

Thanks.

Thrugelmir

If you can afford to do why not buy the property outright. After 5 years your HTB debt would have grown to £65.5k using the 15% you've quoted. If money is tight then perhaps you are stretching yourselves a little too far. Build up some more savings / equity before making the leap. As I'm assuming that you intend making overpayments to achieve a £30k reduction in the mortgagedebt in the first 5 years.

kingstreet

Many places will not see price growth of 15% on a newbuild in five years.

It's possible you may have just about broken even in clearing the newbuild premium unless you are lucky and are in a place where the premium no longer exists.

Flixton86

Thrugelmir wrote: »

If you can afford to do why not buy the property outright. After 5 years your HTB debt would have grown to £65.5k using the 15% you've quoted. If money is tight then perhaps you are stretching yourselves a little too far. Build up some more savings / equity before making the leap. As I'm assuming that you intend making overpayments to achieve a £30k reduction in the mortgagedebt in the first 5 years.

We probably could buy outright - but obviously the monthly cost would be higher and the most of our equity/savings would be gone on the deposit leaving little to spend on the house.

I guess the HTB scheme (I think) allows us to defer these increased costs to a point in the future when we are better placed to cope with it (better jobs/kids in school (un)fortunately coming into some money - not life changing). This is obviously set against the risk of higher interest rates/house price rises/no job etc.

Is this correct?