Is London HTB 40% loan, mis-selling?

elliotwave

The 40% HTB loan for London properties places a significant debt burden on FTB's that opt for it. I mean, it sounds good doesn't it, 40% interest free loan, but after 5 years the buyer has to start paying interest on it on top of their mortgage. So it's a sweetner up front but leaves a bad taste longer term doesn't it.

The government is using taxpayer money here to get people into significant levels of debt that they would otherwise not be undertaking if were not for the huge interest free tax payer loans.

If there is strong enough financial crisis over the next few years at some point this could end in tears and the government could be accused of mis-selling could it not?

steampowered

It would only be mis-selling if the product was not properly explained.

The information I can find online makes it very clear that the buyer has to start paying interest after 5 years. I don't really see how this could be mis-selling.

CLAPTON

elliotwave wrote: »

The 40% HTB loan for London properties places a significant debt burden on FTB's that opt for it. I mean, it sounds good doesn't it, 40% interest free loan, but after 5 years the buyer has to start paying interest on it on top of their mortgage. So it's a sweetner up front but leaves a bad taste longer term doesn't it.

The government is using taxpayer money here to get people into significant levels of debt that they would otherwise not be undertaking if were not for the huge interest free tax payer loans.

If there is strong enough financial crisis over the next few years at some point this could end in tears and the government could be accused of mis-selling could it not?

in the sixth year they only pay a 1.75% fee on the equity loan which seems affordable

elliotwave

CLAPTON wrote: »

in the sixth year they only pay a 1.75% fee on the equity loan which seems affordable

But each year after it goes up by 1% until it reaches some kind of ceiling. Not sure what that ceiling is but... after a few years the buyer is subject to the equity loan repayments and their mortgage repayments. It's the synergy of these debt repayments, PLUS the increased burden of paying the mortgage capital AND the equity capital off over the long term, that maybe is not understood by those taking out the loans thinking that the 40% loan is some kind of great help from the government when in reality it is tactic to induce unwary buyers into significant debt levels? i.e. without the 40% loan, people simply would not take on that level of debt.

CLAPTON

elliotwave wrote: »

But each year after it goes up by 1% until it reaches some kind of ceiling. Not sure what that ceiling is but... after a few years the buyer is subject to the equity loan repayments and their mortgage repayments. It's the synergy of these debt repayments, PLUS the increased burden of paying the mortgage capital AND the equity capital off over the long term, that maybe is not understood by those taking out the loans thinking that the 40% loan is some kind of great help from the government when in reality it is tactic to induce unwary buyers into significant debt levels? i.e. without the 40% loan, people simply would not take on that level of debt.

just as an example if the 1.75% goes up by 1% the in year 7 the rate will be =1.75 + 0.01 x 1.75 = 1.7675%
you do understand that ?
in fact is goes up by 1% plus inflation ,lets say 2% so total rise would be 3% so would be 1.75% + 1.75*0.03 = 1.8%
so in year 7 the new fee rate would be 1.80% so still not a lot

clearly you would prefer to pay your rent (probably more than the mortage) for the rest of your life: but do the ACTUAL maths first and compare buying with renting and see how it goes.

HornetSaver

It's a tricky one.

The ever-falling proportion of buyers who were not born with a silver spoon up their proverbials need to save so much in the first place for a deposit, whilst renting, that it can reasonably be assumed that they are responsible with their money and able to overpay, and that this will be the case even if their wages only keep up with inflation.

For example, if my pay only keeps up with inflation, I project that from buying my first home to paying off that mortgage, borrowing 4x my salary, would take 11 years. Therefore someone borrowing more money on a similar salary multiple to myself should more easily be able to pay within that timescale, which should mean that after five years they would only be exposed to interest on the growth in equity, not the original 40% which by then should be pretty much repaid.

To tie this in to a couple of the other burning issues of the day: The slowest bit is getting the deposit, because of the extent to which those not on the ladder are extorted. I'm not exactly a socialist, and while I have voted for Labour on occasion, I certainly oppose the hard left. But people wonder why there is a small - but growing and very passionate - section of society that believes in such a radical and damaging set of policies. The housing market is the epitome of it, indeed the most commonly used defence of the housing market (simple supply and demand, calm down dear) is kerosene on that fire. In my opinion that's the scariest part about Brexit, more so than any of the possible permutations from Article 50. If the Tories make themselves unelectable, and Corbyn carries on as seems increasingly possible, Britain becomes a socialist country.

steampowered

elliotwave wrote: »

that maybe is not understood by those taking out the loans thinking that the 40% loan is some kind of great help from the government then in reality it is tactic to induce unwary buyers into significant debt levels? i.e. without the 40% loan, people simply would not take on that level of debt.

The features of the loan are clearly explained in simple language on the HTB website. I'm really struggling to see the problem.

Noone is forcing people to take a HTB loan, people can make their own decisions.

elliotwave

CLAPTON wrote: »

just as an example if the 1.75% goes up by 1% the in year 7 the rate will be =1.75 + 0.01 x 1.75 = 1.7675%
you do understand that ?
in fact is goes up by 1% plus inflation ,lets say 2% so total rise would be 3% so would be 1.75% + 1.75*0.03 = 1.8%
so in year 7 the new fee rate would be 1.80% so still not a lot

ok, so the rate does remain slightly lower than I thought, but its still comparable to a lower rate mortgage. In any case it doesn't change my main point. That additional 40% loan still has to be paid back doesn't it, so even if the 40% loan rate is competitive the end game is an oppressive long term debt burden for unwary buyers?

Also, the HTB equity loan can actually end up becoming a very expensive one, its not just the interest you have to worry about:-

• You take a 40% equity loan to buy a property worth £200,000, so the equity loan value is £80,000.
• When you come to sell, the property is worth £250,000.
• You repay £100,000 – this is 40% of the new value of your home, not the amount you borrowed.

mrginge

elliotwave wrote: »

ok, so the rate does remain slightly lower than I thought, but its still comparable to a lower rate mortgage. In any case it doesn't change my main point. That additional 40% loan still has to be paid back doesn't it, so even if the 40% loan rate is competitive the end game is an oppressive long term debt burden for unwary buyers?

Also, the HTB equity loan can actually end up becoming a very expensive one, its not just the interest you have to worry about:-

• You take a 40% equity loan to buy a property worth £200,000, so the equity loan value is £80,000.
• When you come to sell, the property is worth £250,000.
• You repay £100,000 – this is 40% of the new value of your home, not the amount you borrowed.

Are you on some kind of medication?

It is an EQUITY loan.
They are lending you a % of EQUITY

If you get a 50k increase in equity then you don't get to keep all of it.
Some of that equity increase goes back to the govt as it should.

Just like if the equity decreased then the loan repayment would be less than the original amount.

Honestly it's not a hard concept to grasp. But then again you didn't understand how the interest payment increases either so I guess it's to be expected.

CLAPTON

elliotwave wrote: »

ok, so the rate does remain slightly lower than I thought, but its still comparable to a lower rate mortgage. In any case it doesn't change my main point. That additional 40% loan still has to be paid back doesn't it, so even if the 40% loan rate is competitive the end game is an oppressive long term debt burden for unwary buyers?

Also, the HTB equity loan can actually end up becoming a very expensive one, its not just the interest you have to worry about:-

• You take a 40% equity loan to buy a property worth £200,000, so the equity loan value is £80,000.
• When you come to sell, the property is worth £250,000.
• You repay £100,000 – this is 40% of the new value of your home, not the amount you borrowed.

DO THE MATHS PROPERLY

house A with goverment loan
property value 200,000
gov loan = 80,000
your deposit = 5% = 10,000
mortgage = 110,000
if you sell for 250,000 (i.e. 12.5% more)
then your equity will be 250,000 - 110,000 - 100,000 = 40,000
so your miserable 10k deposit has grown to 40,000 as deposit for next house

house B with no gov loan
deposit =10,000
mortgage = 110,000
property value = 120,000
if you sell with 12.5% growth then house value = 135,000
new equity is only 15k for next house



so you a lot more deposit availble for your next house and have enjoyed a better house too

errors and exception excluded

gagahouse

mrginge wrote: »

Are you on some kind of medication?

It is an EQUITY loan.
They are lending you a % of EQUITY

If you get a 50k increase in equity then you don't get to keep all of it.
Some of that equity increase goes back to the govt as it should.

Just like if the equity decreased then the loan repayment would be less than the original amount.

Honestly it's not a hard concept to grasp. But then again you didn't understand how the interest payment increases either so I guess it's to be expected.

Agree with you but are you sure about the bolded part? I always wondered if the govt wears the downside risk.