Help To Buy - Pros/Cons?

buel10

Hi all.

I've read a little about the Government's Help To Buy scheme but would be interested to hear people's thoughts on here regarding it?

For starters, I believe it's for new builds only so that immediately restricts your choices?

Elfbert

We looked at it, as there was a development close to where we currently live, and the flats looked roughly the right spec for us.

However, we found they all seemed to be overpriced.

We're buying a 2 bed 2 bath which is 2 yrs old in another development, and it was almost £195,000 cheaper than the same spec flat in the HTB development. (London, so everything is wild prices, but the HTB stuff just seemed ridiculous.)

Look carefully at what else you could get for your money in the area.

Keatster

We have just reserved a H2B property in East Midlands (currently finding mortgage)...prices for the new property are around 10% more than an equivalent pre-owned property built 5 years ago very near by. We will pay £285k and could get something similar and pre-owned for around £260.

Benefits for us is at 75%ltv under H2B our interest rate and mortgage payment will be much lower that 90%Ltd without H2B, so we will still be able to have 3 holidays a year etc, and as we only pay 5% ourselves we have money left in our pot to get the house looking how we want it, and we wouldn't be able to do that otherwise.

Pitfall, Of course, is that we hope within 5 years the property has increased enough so we can extract ourselves from the H2B, sell up and have enough equity left for a deposit in a property that better fits our dream forever home (converted barn in countryside). If it doesn't we'll be stuck, and that's fairly depressing...but, we know that risks. I think that as long as H2B isn't pulled as a scheme in next 5 or 6 years then we should be ok.

We rolled our dice, we take our chance...

kingstreet

HTB Equity Loan is currently scheduled for withdrawal in 2020.

Keatster

Yup, hopefully to be replaced with a similar scheme else that could result in a drop in prices meaning many who bought under the scheme won't be able to afford to move.

brit1234

Keatster wrote: »

Yup, hopefully to be replaced with a similar scheme else that could result in a drop in prices meaning many who bought under the scheme won't be able to afford to move.

That's the problem. Help to buy was used by the big builders to push prices up for first time buyers. £450k for 1 bed help to buy properties are not affordable homes despite classed that.

It only benefits the builder and leaves buyers horribly in debt and facing negative equity. Its just the gift deposit scam reinvented and those buyers were burnt.

buel10

So, just to check something (as I am slow most of the time) - when using HTB, you are banking on your house to have gained 20% equity at the end of the 5 year period so you can remortgage and pay the loan back?

amnblog

buel10 wrote: »

So, just to check something (as I am slow most of the time) - when using HTB, you are banking on your house to have gained 20% equity at the end of the 5 year period so you can remortgage and pay the loan back?

The house will rise or fall in value, it is not something you can 'bank on'.


We have clients in the South East already showing sufficient equity to re-mortgage the Equity Loan out. That wont be the case in other areas of the Country,


The Interest payable from year 6 is reasonably priced.

buel10

amnblog wrote: »

The house will rise or fall in value, it is not something you can 'bank on'.


We have clients in the South East already showing sufficient equity to re-mortgage the Equity Loan out. That wont be the case in other areas of the Country,


The Interest payable from year 6 is reasonably priced.

I didn't mean for me to 'bank on', more that some do, but thank you.
So, worse case scenario is the house has either lost value or is the same and your monthly payments will increase to include the interest on the HTB loan?

the_learner

amnblog wrote: »

The house will rise or fall in value, it is not something you can 'bank on'.


We have clients in the South East already showing sufficient equity to re-mortgage the Equity Loan out. That wont be the case in other areas of the Country,


The Interest payable from year 6 is reasonably priced.

Hi, regarding the interests from year 6, they say the buyer should pay 1.75% that will increase by the inflation rate +1%.
Assuming an inflation rate of 2% on year 7 and flat to 3% from year 8 onwards, is the following correct:

Year 6) 1.75%
Year 7) 4.75% (= 1.75% + 2% + 1%)
Year 8) 5.75% ( = 1.75% + 3% + 1%)
Year 9) 5.75% ( = 1.75% + 3% + 1%)
Year 10) 5.75% ( = 1.75% + 3% + 1%)

EDIT

I found this document from Santander where they make a clear example and it looks like my previous understanding is wrong. The Inflation rate + 1% is the rate of increase of the original rate of 1.75%, so it won't be simply added to the rate (luckily).

https://www.santanderforintermediaries.co.uk/downloads/1068

kingstreet

Payments are based on 1.75%pa in year six.

if inflation is running at 5% per annum, the rate in year seven will be 1.87%, 2.0% in year eight and so on.

Download a copy of the HTB Buyers Guide. The explanation is on pages 14 & 15 IIRC.

https://www.helptobuy.gov.uk/equity-loan/equity-loans/