Help to Buy Equity Loan - what % to take

black_wings

Hi people. Weren't planning on buying so soon - have just been saving endlessly but we have seen a new development come up next to us offering the London HTB equity loan scheme and we really want to go for it if it's possible. The flats are reserving in a couple of weeks time and building finished by September.

Applicant 1: employed 32k Applicant 2: sole trader 14/15 27k 15/16 23k.
Purchase price 300k
Deposit 15k (5%) PLUS we have all the ££ ready for stamp duty and other fees.
We were looking to lend 225k over a 35 year term which means taking 20% equity loan. This takes us to just over 4x gross income. What's the opinion on this lending figure with our salaries? Are the mortgage lenders more willing to lend when using the HTB scheme if it fits the affordability calculator or is their criteria just the same as any other first time buyer? We have never had any debts and no dependents. Hoping to find a lender who will consider average of last 2 years self employed accounts. We like the look of Nationwide.

The place is a flat so realistically speaking we will probably sell up in 5 years time and move north. Based on this, would you take a higher equity loan in order to have a lower mortgage lending (and lower so better rates) and therefore higher chance of acceptance on the loan? Downside of course is that (if) a profit is made during resale 40% of that goes to the equity loan. Could we in part balance this out by hammering out as much over payments to the mortgage as possible? We would also then have a better LTV so lower interest rate.

Not sure if there is an easy way of working out if it's wiser to take the lowest equity loan we can or take a higher equity loan but make over payments to increase our equity that way?
The development is next to one of the Crossrail stations opening in 2018.

Thoughts?

kingstreet

Your borrowing power falls as lenders take 3% or 4% of the equity loan into account when calculating affordability. Not forgetting ground rent and service charges of course.

You need to get the Government's HTB calculator done and lender calculations to establish what is possible.

An independent broker with HTB/newbuild experience should be first port of call.

black_wings

Thanks for the reply
So confused now because I used the htb excel calculator and it came out well under the limits. Also spoke with a htb broker and he also said it was fine. I originally planned to go with 40% equity loan so affordability for the mortgage would be fine. But he suggested increasing the term to 35 years to only take 20% equity loan so we own more. He said mortgage would still be fine but i wasnt so sure about being lent 4.1x income.

kingstreet

I haven't done the calculations for your case, so I'm not saying there's anything wrong. You didn't mention having spoken to a broker so I set out a couple of issues to be aware of when completing lender affordability calculations.

When you complete the HTB calculator and lender calculators, you work from the lowest output of the two, so as long as the lowest gives you what you need, that side of the process should be acceptable.

Then, you move on to satisfying lender criteria, credit worthiness and the property.

ViolaLass

Overpayments won't help your LTV with this purchase (not saying they're not a good idea, just that they won't help with this problem).

black_wings

The calculator came out as 40% on the overall when taking 20% equity loan. As a compromise may try and bat for 30% equity loan to increase our affordability under the 40% which may be more achievable in terms of mortgage approval. When doing the generic how much can we lend you on the banks/building socs who participate in htb they said they may offer up to 250k on 25 year term. So i am hoping that applying for circa 200k on 35 year term would be sensible.
We have clean credit files.
Just paid out 5k for a holiday which i hope doesnt look bad towards our last 3 months bank statements with regards to outgoings as was all paid with our own savings and we still have 5% deposit, stamp duty and fees remaining.