HTB Staircase payment affect on interest

firsttimer1986

My position at the moment is that of a prospective buyer looking to use HTB. I am able to get my mortgage down to a 70% LTV using this scheme and it allows us to get a similar level of house to the rented one we are currently in.

I have done some details spreadsheets that calculate HTB Interest rates, monthly repayment fees, predicted capital increase and RPI increases along with how much we will need to buy out the Govt at certain points if this all remains on track.

I will not be able to afford to buy the Govt out outright or even at half of their share by the 5 year point in cash, but should be well within a position to remortgage to take half of their position back, financially this all seems fine.

My issue is that the interest is calculated in year 6 based upon the initial loan amount for arguments sake lets say 70k. If in year 5 I repay the government their 10% (35k plus capital increase, plus 200 fee, solicitor and surveyor), what happens to the interest payments. I rang target and got a woman who didnt seem to know or understand my question but who suggested that I continue to pay interest on the 70k - that cannot be right can it?

Surely if I have bought them out they cannot legally charge interest on a previous amount. Has anyone had real world experience of this?

kingstreet

In year six, you will pay 1.75% of the amount remaining, not on what you originally borrowed.

Assuming inflation at 5%pa, you'll pay 1.87% in year seven, 1.98% in year eight and so on.

There is an example in the HTB Guide.

firsttimer1986

"If you decide to staircase after five years of ownership, the fees (see below) you pay on your Help to Buy equity loan will reduce to reflect your smaller outstanding loan percentage." - HTB Morgage Buyers Guide

This is the only reference I can find to this, but the illustration at 4a just shows the increase in interest on an initial 40k loan.

At the point of staircasing, if you buy them out of 10% on a 50k initial loan does that mean your interest is calculated on:


a - 25k (50% of the initial loan).
b - 50k (the full initial loan).
c - 10% of the equity - potentially more than 50k