Help to Buy

madamjojo2014

My husband and I are looking to buy our first home. We are looking at Help to Buy, firstly I was under the impression from all the publicity last year that the scheme was being rolled out to second hand homes as well as new builds? Unfortunately I can't figure no any info at all! Secondly, what have peoples experiences been with Help to Buy equity loans? Any tips or advice would be much appreciated!
Thanks

Windofchange

All the information is on the site:

https://www.helptobuy.gov.uk

If you are looking at shared ownership then you can buy any home (new or old) that is up for sale within the housing association area that you are connected to. They will sell to people who work in the area, have grown up in the area or can prove other such routes as I understand it. So, if you live in London you couldn't buy a house in Hull and vice versa.

If you mean equity loan - from the FAQ section.

"All Help to Buy: equity loan homes are on new build developments where the Homes and Communities Agency has a registration agreement with the house builder. You can only purchase from these house builders. The maximum purchase price is £600,000."

As for experiences, I looked into it briefly when it was announced with great fanfare and decided that I wouldn't touch it with a bargepole. With the equity loan the government is saying hey you know all that irresponsibility of sub prime mortgages that lead to the 2008 crash? Well let's just do that again but call it something different. As for the shared ownership part, don't even get me started.

Two colleagues of mine at work have recently jumped aboard this madness in London of all places. £180k for a 30% share in a two bed flat for one of them, and I'm unsure about the other one, but let's assume similar picture. So what is that a 520k or so flat? She has absolutely no hope of ever paying that off unless she comes into money from inheritance etc, but it's ok of course because house prices will just go up forever more. Her share will be worth £280k of course in 5 years time when she plans to sell. The sting in the tail being the governments 70% will also be worth xxx % more. Who is going to take that one on? Prices fall she loses, prices rise she loses.

Things are maybe a little more realistic outside of the South East and perhaps people do staircase successfully. Depends where you want to / are able to buy I suppose. For me the very fact that the government needs to be involved at all in a supposedly free market tells me all I need to know about the health of the property market. I think the below article probably sums the above up very well...

http://www.independent.co.uk/voices/comment/help-to-buy-the-government-scam-of-a-lifetime-8869349.html

gycraig_2

I don't see the point you are trying to make on if the house prices go up they lose.

The person is living in a flat they definitely couldn't afford and they are only paying a small percentage of what a private landlord would charge on the rest of the rent.

Yer the government take 70 percent of the profit but she is only paying a mortgage on 30 percent then a small rent on the rest.
It's not something I would do when I can buy a house for 110k where I live but I fully get it in London.

Alternative is she stays renting paying another landlord thousands of pounds building no equity and also facing eviction whenever the landlord changes his mind

Windofchange

gycraig wrote: »

I don't see the point you are trying to make on if the house prices go up they lose.

The person is living in a flat they definitely couldn't afford and they are only paying a small percentage of what a private landlord would charge on the rest of the rent.

Yer the government take 70 percent of the profit but she is only paying a mortgage on 30 percent then a small rent on the rest.
It's not something I would do when I can buy a house for 110k where I live but I fully get it in London.

Alternative is she stays renting paying another landlord thousands of pounds building no equity and also facing eviction whenever the landlord changes his mind

Ok, so let's work through it then - get comfortable!

Let's say her flat is worth £500,000 for simplicity of figures. She 'owns' 30% of this which is £150,000. Let's say she had a £25,000 deposit, so she has a mortgage of £125,000.

Now, let's say that in the next 5 years her flat increases in value by 25%. So, the flat is now worth £625,000. Great, her 25% (£150,000) is now worth £187,500. However, the government's share (£350,000) is now worth £437,500 (she now has an extra £87,500 of debt to be paid back - sneaky).

She now decides OK, I want to own more of my flat by stair casing another 20% to take her share to 50%. This stair casing amount is now worked out on the new value of the flat (£625,000). To own 50% of your flat, you need hand over £125,000 (20% of £625,000). If prices had stayed the same, you would pay £100,000 (20% of £500,000). So, as per this very basic example (Ignoring admin fees, mortgage broker fees, solicitor fees etc etc) it is costing her an extra £25,000 to increase her ownership by 20% due to rising prices.

Now, people will point to the fact that she has 'made' £37,500 on the increase in her original 25%, but this is nearly wiped out by the increase now required to stair case, solicitors fees, admin etc. Furthermore, if your goal is to own 100% of the property what does this matter? The property you hope to own is forever getting more and more out of reach should prices continue to rocket up forever.

Ok, well what if I sell it and cash in the equity and go and buy somewhere cheaper? Well, you are relying on the fact that some other mug will come and pay you considerably more for your share, and be happy to take on the now further out of reach remaining equity. My argument would be that the more prices rise, the less attractive shared ownership becomes as people will simply say I'm not paying £312,500 as an example for 50% of a shoe box in London. It may be the decision is taken out of their hands because they get told they can't borrow that amount anyway. So there you are, stuck with your small flat when you want to sell up and move in with your boy / girlfriend and start a family.

I actually think you have this the wrong way around. I think that this model makes more sense outside of London. If you are talking about a house or flat worth £100,000 then it is realistic that you will pay this amount back and staircase to 100% ownership. My friends salary is around the £35,000 a year mark. Excluding winning the lottery or getting a large inheritance she has no hope of ever stair casing to 100% ownership. If you look at an outright purchase of 50% of the above example (hers was more expensive) that is a £250,000 mortgage. That is 25 years of repayments on that sort of salary and you own half the flat. A mortgage on £500,000 at 3% comes in at £2371 a month which is about £5-600 more than her post tax take home pay!

As for your comment about throwing money away etc etc, well you are paying rent to the housing association for what you don't own! The help to buy site states that typically you pay 3% a year rent on the remaining share. Pennies hey? NO. 3% of £350,000 as per this case is a rental charge of £10,500 a year, or £875 a month!

To further elaborate, according to the calculator on this site, a mortgage on £125,000 at 3% will cost £593 a month. Add to this your rent of £875 a month and then the service charge of £2-300 a month (yes really) that these places charge and you are looking at around £1600 a month. Now, they may cap the rent a bit, but I have looked into these places out of interest over the years and this isn't going to be far off the mark. Add to this you are responsible for 100% of all repair bills. Boiler goes, that's you. !!!!!! put a brick through your window, that's you. None of the benefits of renting and none of the benefits of owning - you need to ask permission before doing anything 'your' house.

I think your line "the person is living in a flat they definitely couldn't afford" pretty nicely sums up the madness of all this. At what point in history would a 25 year old have been able to get their hands on over half a million quid to buy a starter home!? Even if you adjust for inflation etc etc this is many many multiples of income over anything our parents would have had access to as a first time buyer. I sometimes feel like I am the only one who actually gets what is going on - certainly in London / South East anyway. We have a housing market that just doesn't work. It is not supply / demand issues and immigration, well certainly not to the extent that the press would have you believe. There is plenty of supply of these new build flats, and there is plenty of demand from young people wanting somewhere to live.

The problem is limitless reckless lending which has inflated the biggest housing bubble in history. It tried to crash in 2008 but of course wasn't allowed to as it would have wiped out some of the governments best friends (bankers, house builders, buy to let empires). If instead of saying to my friend, yeah sure, we'll facilitate you getting a £529,000 flat they said no, we won't lend you the money and we are getting rid of all these props then property would have to depreciate as nobody could afford it. We would then let the market dictate what price something is worth and we would have a country / world (it's happening all over) where people like you and me could afford a reasonable home and have a few beers at the end of the week. Instead we have the situation where the population at large believes house prices will only ever go up and you had best get as much debt as humanly possible or get left behind forever. Sentiment has inflated this bubble and sentiment will bring it down once all this unwinds.

This is only going to end one way - tomorrow, next month, next year, in 5 years, who knows, but this whole thing will go pop and take down a generation for the rest of their working lives.

Windofchange

And to give you an actual practical example from just up the road from where I live:

http://www.rightmove.co.uk/new-homes-for-sale/property-43706448.html

Yup, you read that right. £530,000 for a 1 bed flat where you might just about be able to swing a cat if you get your position in the front room just so.

30% for £159,000
Rent of £680.17
Service charge let's just round it up to £200 shall we they thought.

So you've paid (wasted as you would call it) just under £900 a month in rent / service charge before you've even considered your mortgage. And when you've paid your mortgage in 25 years time you own 30% of a small flat.

But hey at least you can tell your friends down the pub that you 'own' a flat in London. Just don't try and paint the walls a different colour mind...

I picture a room full of bankers crying tears of laughter into their champagne.

Petite_Anglaise

Hi Madamjojo

I can share a little bit of experience of HTB but we didn't go ahead with it in the end. We are looking in S/SE London at the moment.

A new development in a place called Lower Sydenham (zone 4) was launched towards the end of last year, we went along to see what it was all about.

The properties all look good with the latest shiny fixtures & fittings.
However, the finalised price list was shocking!

The 3 bed flats were just a few pounds below the limit of £600,000
2 beds were around £530,000

Not forgetting the monthly service charge you have to pay for a flat- think the 3 beds were around £200/month.

And stamp duty which is a significant amount on properties of this value.

Actually, I think the developers have now offered to pay some/all of the stamp duty as I think very few had been sold before Christmas (no surprise there)

The idea is that you put down a 5% deposit, the government loan is for 40% of the property value and then you get a mortgage for the remaining 55%

Think you have 5 years before you have to start paying off the loan.

Anyhow, this is just an example of a development- we decided not to go ahead as we were better off looking for a 2 bed on the open market as they work out more affordable than HTB.

And the 3 bed flats (the ones we were interested in) we could not afford by a long shot- and this development is 'Help to Buy' supposedly for the first time buyers struggling to get on the ladder.

Petite_Anglaise

Re shared ownership

We also looked into this as another option- we applied for a property local to us in SE London.

Unfortunately, we didn't come top of the list, so could not proceed with buying 30% share or whatever it was.

The poster above has really nicely summed up how I feel re SO properties and how it's a nice idea to let you owe a property/get on the ladder, but in reality there are a hell of a lot of costs involved and you still only own 30% of the property, unless you have the funds to increase your share.

I know a couple of people who have bought SO properties, both were purchased over 5 years ago, neither have staircased up their % share and both are in the process of selling to enable them to purchase a larger property on the open market.

Dr_Gonzo_95

Comparing London to the rest of the country is bonkers in my opinion especially when discussing Shared ownership and HTB.

We bought our first flat with Shared Ownership from a local housing association in Bristol.
40% share of a a £125,000 flat, (£50,000), our mortgage was something like £45,000 maybe even more (I can't remember).
We had a mortgage of about £300, and a rent of around £250, which for Bristol back in 2004 was probably quite good.

We never staircased our % owned because we always wanted to move asap, it was just a stepping stone.
Sold our share 3 years later for about £57,000. The Housing association kept their 60% share and the rental transferred onto the new owners.
Walked away with about £14,000 to put towards a house (plus I had a chunk of redundancy to add to that to for a deposit and additional fees/stamp duty etc).

After nearly 10 years in our current house we are now planning to make use of the HTB equity loan scheme and buy a new build in a quite village between Bristol & Gloucester.
I am well aware that if I sell, the government will take 20% of any profit we make, and I am perfectly happy with that.
We've just had a baby, and my wife is on part time salary currently so that has affected our mortgage potential (trust me we've tried every possibility), so HTB was the best route to get a family home.
Hopefully in 5 years time we'll be in a position to purchase back that 20%, or move on to a better place that we'll own 100%.
Even if that is not possible, I know that we'll be able to afford the interest payments back to HTB if we stay there longer than 5 years.

CLAPTON

whether HTB is an appropriate system for any person depends upon the alternatives

bruich76

I never understand why people criticise the HTB because the government get a percentage of any increase in price rise in the property. Seems crazy to me. Mainly because, it allows you to buy a house you otherwise would not and the 20 percent is not yours in the first place.


It seems like a pretty decent stand off to me to give them 20 percent of whatever the house sells for in the future as a comprise for it being lent to you in the first place.


That said, I appreciate other arguments such as it creates a debt that is hard to pay off after 5 years - that's true. Likewise, it creates and adds to the rising price of houses. We all know that isn't just going to stop and even if there is a crash in a Country were housing is in shortage it will only go back up again in the future.


To me the main concern is what happens after 5 years. As many won't be able to pay it off and will start paying the small amount of interest. That said.... if you keep the house for 10 / 15 years you will be able to re-mortgage quite comfortably and pay it off.

Windofchange

bruich76 wrote: »

I never understand why people criticise the HTB because the government get a percentage of any increase in price rise in the property. Seems crazy to me. Mainly because, it allows you to buy a house you otherwise would not and the 20 percent is not yours in the first place.


It seems like a pretty decent stand off to me to give them 20 percent of whatever the house sells for in the future as a comprise for it being lent to you in the first place.


That said, I appreciate other arguments such as it creates a debt that is hard to pay off after 5 years - that's true. Likewise, it creates and adds to the rising price of houses. We all know that isn't just going to stop and even if there is a crash in a Country were housing is in shortage it will only go back up again in the future.


To me the main concern is what happens after 5 years. As many won't be able to pay it off and will start paying the small amount of interest. That said.... if you keep the house for 10 / 15 years you will be able to re-mortgage quite comfortably and pay it off.

I think I have done a pretty reasonable job explaining why I criticise HTB above. As to your point about a housing shortage, again, have a read of the above. There isn't a housing shortage. It is what you are told to believe by the press and the government etc, and unfortunately a lot of people just accept that at face value. Don't take my word for it:

https://capx.co/there-is-no-uk-housing-crisis-and-there-never-was-one/

If I had £500,000 I could go out tomorrow and buy a flat in London. There are literally thousands of new build flats up for sale. Whole developments. Take a drive around at night time - big high rise new builds with most of the lights off because either rich people have parked their money there, or they are unsold.

There is a shortage of affordable housing. This is the bottom line. What do building companies want? They want to make massive profits by selling ever increasing assets. It fits them quite nicely to say there is a shortage, but hey bung us a few billion quid and we'll sort it out for you. We can then bank roll some of the next conservative election campaign. You scratch our back by keeping interest rates low, open up a dozen (at least) first time buyer schemes to support this mess and we'll scratch yours. Let's feed stories to the press about a housing crisis to keep people throwing ever increasing amounts of money at this thing for fear of never owning anything.

You have just gone around in circles in your post saying how great it is that someone can afford somewhere that they can't really and how it's a great idea but people will struggle to pay off the debt in 5 years time. How does that make anything a great idea? Then of course the usual stuff about house price rises forever. In 100 years time I agree your house will be worth more than it is now, but in 1 year? 5 years? No-one has a crystal ball but you find me any commodity in history that has increased forever without a downside! Have a read of this and apply it to what is going on at the moment with housing!

https://en.wikipedia.org/wiki/Tulip_mania