Help to buy equity loan advice

cw500

Hi all (and sorry for the long post!)

We are wannabe first time buyers who have been saving up for a deposit. We live in an area where average property prices are very high outside London, so in our original plan we would have been saving for another 2/3+ more years before we got to this point!

We had got to about £20,000 in savings...However my partner has been very fortunate to have been gifted a large amount of money held in shares (over £100,000) and now we are not sure quite what to do. Aside from the fact the money is held in shares and would be subject to capital gains tax (another thread in itself!), we aren't sure what our best options is for a mortgage.

I'm considering the help to buy equity loan and buying a new build as we could put down a smaller deposit now (which I think would help us avoid capital gains tax) and use the help to buy equity loan to make up the deposit. We would definitely be able to pay the whole sum back within five years to avoid the interest, although I understand it's dependent on the property's value at the time of repayment.

I'm thinking the alternative is to have a smaller deposit now and then make early repayments on a mortgage when we can access the money, but in that situation I think our combined salaries would hold us back in terms of the amount a bank would lend us, and we wouldn't get a large enough mortgage for the area we are in?

I'm not sure what other way there is which could be suitable for us, given that the money is held in shares and we can't access it all immediately.... Any advice would be much appreciated

Thanks in advance

Lilla_D

Hi, we would need to know your income, outgoings, number of children and credit history to answer your question. Without these, it's impossible to say what your mortgage options are...
In any case, if you can't borrow enough to buy something outright or even with the Help to Buy scheme, but you're keen to buy sooner rather than later, you could also consider shared ownership as a first step.

cw500

Hi,

We have no children, our combined income is about £60000, and we have no debts.... so our outgoings at the moment are just our rent etc. We don't really have any big expenses that we pay off each month and we are generally quite careful with our spending. We have never had any debts (other than our student loans) and always pay our rent on time so I'd hope that we both have a good credit history too (although this is something I need to check).

We'd be looking to buy something for around £300,000 in our area.

I will have a look into the shared ownership scheme Thank you!

smem18

Would it not simply be best to use the money from the shares towards your deposit?

If not, your plan sounds ok and I think there are just a couple of things to consider:

1) New builds usually require at least a 15% deposit, and many lenders ask for a 20-25% deposit. However, there are 1 or 2 lenders who will do a new build mortgage with a 10% deposit if you are relatively high earners and tick all the other boxes (demonstrate good saving and spending habits, good credit, etc.). We are just going through the process of purchasing a new build flat that costs £320,000 with a 10% deposit that is our own savings and so far everything is going smoothly and we're expecting a mortgage offer from Skipton.

2) With equity loans, if the value of your property increases, you pay back the market value price of your loan so I think the amount you owe can increase. I don't fully understand and haven't researched it totally that but its something to consider and look in to. I might be wrong!

Remember you will need around £8,000 for stamp duty and fees (mortgage and solicitor fees). My other tip is to order hard copies of your bank statements and savings statements from all banks/shares NOW. They can take ages to arrive and we had a delay because the statements we downloaded from our online banking and premium bonds accounts didn't have our name and address on so they're unacceptable evidence! The only way to get them was to phone up and have them posted!

smem18

Also, definitely check your credit history just in case there are any errors on there! and ensure you are both registered on the electoral role.

cw500

We would have preferred to sell the shares to free up the money for a larger deposit. The problem is that we would have to pay capital gains tax if we sell too many shares in one tax year. I'm guessing that the help to buy equity loan is our best bet, and we will have to take a gamble on the house price not going up too much!

We are on the electoral roll and I will check our credit history.

cw500

This is also dependent on there being no restrictions on the help to buy equity loan with regards to the amount of savings you can have...

kingstreet

cw500 wrote: »

This is also dependent on there being no restrictions on the help to buy equity loan with regards to the amount of savings you can have...

There are none.

FWIW minimum mortgage is 25%, so you can put down 55% deposit and have a 20% equity loan if you choose.

cw500

OK, it seems like that might be the best option for us then. Thanks very much!

wjr4

Do you know how much capital gains tax would be due? As if I were you, I'd find that out first before considering the equity loan.

Personally, if I had the money to avoid help to buy, I would (e.g. I have 95% mortgage but nothing to do with help to buy as I prefer knowing things like I'm not restricted in any way, the house I bought was a LOT cheaper than a new build, the garden and bedrooms are bigger and also I do not have to worry about an equity loan as well as a mortgage).

Which area are you looking at buying?

cw500

We don't know yet exactly, but I think my partner would want to get at least £60,000 out of the shares as I'm not sure that having such a large amount of money in shares is a good idea. I'm not sure how feasible that is, but obviously this is first thing we need to get sorted out!

We want to buy near Cambridge. I don't like the idea of gambling on the house price but at the same time, I'm wondering if a new build would go up in price that much over a few years? I would also prefer an older house, but I'm just wondering then if we should sit tight for a bit longer as we originally planned, or go for a bigger mortgage?