Use Help to Buy to go for big house, or buy small on normal mortgage?

Grimezy93

Hello,

My wife and I are in our 20's and are looking to buy our first home in the next 6 months or so. We both work full-time, with salaried jobs and a combined income of a little over £50k per year and seems to go up each year. We also have really good credit reports from previous borrowing that is now pretty much all paid off.

We currently rent privately and will only have a 5% deposit by the end of our estimated 6 month period. With the new changes to stamp duty, etc I'm after some advice as the way I see it is I've got about 3 options. For info, we've done an AIP just to see where we're at and it's come back saying they'd be prepared to lend us £251,000.

1) We could buy a pre-owned 2-bed/small 3-bed for £180,000-£200,000 on the market using a regular 95% mortgage. Yes, the repayments seem to be coming out at £750-£800/month but we already pay rent for £650/month and save quite a lot on top of that so I think it would be manageable while we build equity.

2) We could use the help to buy equity loan to buy a new version of the above but obviously the monthly repayments would be lower with the help of the 20% loan. The prices seem to vary a lot though and you don't seem to get a lot for your money in a new-build 2 bed, and it wouldn't actually be much bigger than the house we rent now so we'd be looking to move with 5 years I reckon.

3) My final thought which is the one I hope you see my logic in is to go all out on a really nice new house. I'm seeing a lot of 3 bedroom detached, with garage, with ensuite, nice garden, etc etc for £270,000-£280,000. This is way more than than we ever thought we'd borrow but bear with me. With the help to buy loan and a 5% deposit, our actual mortgage would only be around the £200,000 mark, which monthly repayments seem to be coming out at £600-£650 per month. The house would be big enough to live in for quite a while, we'd still be able to save and hopefully buy the 20% shares back as soon as possible, we wouldn't be thinking of needing to move in a few years if we have kids, we'd be being smart with stamp duty seeing as we get it free.

My question is, am I aiming too high? It all looks good on paper, but it is a lot of money to borrow and I don't know if the equity loan would become too much of a nuisance down the line. A part of me just wants to move into something we'll be happy with for years, but then perhaps I'd be better off trying to build equity on a smaller property for a few years and then try to upgrade, just without the perk of free stamp duty.

I've got some friends who have been pleased with the equity loan but none of them have gone past the 5 year interest-free period yet.

Hope I've explained myself well enough! Would appreciate any input Thanks!

mostlynice

One of the good things about using the HTB scheme, is if you take the mortgage out over 5 years and are prepared to save over this term.

Example - House value £280,000. These numbers are rough as interest rate is not confirmed

20% HTB and 5% deposit = £210,000 mortgage

5 years x £650 = £39,000

Your HTB would be £56,000.

So providing you can save £17,000 (£284 per month) over the 5 year mortgage term, when you come to re-mortgage, you can pay off the HTB with the equity and savings, leaving you with a £212,800 mortgage and £0 interest to pay on any HTB loan.

Time2go

Sorry but your calls assume that mortgage repayments pay off capital rather than capital and interest

Tom99

mostlynice wrote: »

One of the good things about using the HTB scheme, is if you take the mortgage out over 5 years and are prepared to save over this term.

Example - House value £280,000. These numbers are rough as interest rate is not confirmed

20% HTB and 5% deposit = £210,000 mortgage

5 years x £650 = £39,000

Your HTB would be £56,000.

So providing you can save £17,000 (£284 per month) over the 5 year mortgage term, when you come to re-mortgage, you can pay off the HTB with the equity and savings, leaving you with a £212,800 mortgage and £0 interest to pay on any HTB loan.

I am not sure those figures add up as most of the £650 pm will be interest.

mostlynice

You are both correct. That is why I said the numbers are rough due to no confirmation on interest rates.

It gives the OP a general idea of how the HTB is played if you want rid of it early

getmore4less

Grimezy93 wrote: »

Hello,

My wife and I are in our 20's and are looking to buy our first home in the next 6 months or so. We both work full-time, with salaried jobs and a combined income of a little over £50k per year and seems to go up each year. We also have really good credit reports from previous borrowing that is now pretty much all paid off.

We currently rent privately and will only have a 5% deposit by the end of our estimated 6 month period. With the new changes to stamp duty, etc I'm after some advice as the way I see it is I've got about 3 options. For info, we've done an AIP just to see where we're at and it's come back saying they'd be prepared to lend us £251,000.

1) We could buy a pre-owned 2-bed/small 3-bed for £180,000-£200,000 on the market using a regular 95% mortgage. Yes, the repayments seem to be coming out at £750-£800/month but we already pay rent for £650/month and save quite a lot on top of that so I think it would be manageable while we build equity.

What rate is that mortgage at 95%?

2) We could use the help to buy equity loan to buy a new version of the above but obviously the monthly repayments would be lower with the help of the 20% loan. The prices seem to vary a lot though and you don't seem to get a lot for your money in a new-build 2 bed, and it wouldn't actually be much bigger than the house we rent now so we'd be looking to move with 5 years I reckon.

you have the new buy premium but also 25% deposit so far better rates

3) My final thought which is the one I hope you see my logic in is to go all out on a really nice new house. I'm seeing a lot of 3 bedroom detached, with garage, with ensuite, nice garden, etc etc for £270,000-£280,000. This is way more than than we ever thought we'd borrow but bear with me. With the help to buy loan and a 5% deposit, our actual mortgage would only be around the £200,000 mark, which monthly repayments seem to be coming out at £600-£650 per month. The house would be big enough to live in for quite a while, we'd still be able to save and hopefully buy the 20% shares back as soon as possible, we wouldn't be thinking of needing to move in a few years if we have kids, we'd be being smart with stamp duty seeing as we get it free.

see that extra deposit(borrowed for free) gives a much better rate so a lower payment(assuming they are the same term) but again a bit of new build premium

My question is, am I aiming too high? It all looks good on paper, but it is a lot of money to borrow and I don't know if the equity loan would become too much of a nuisance down the line. A part of me just wants to move into something we'll be happy with for years, but then perhaps I'd be better off trying to build equity on a smaller property for a few years and then try to upgrade, just without the perk of free stamp duty.

I've got some friends who have been pleased with the equity loan but none of them have gone past the 5 year interest-free period yet.

Hope I've explained myself well enough! Would appreciate any input Thanks!

I get it.

You get a far better rate on your borrowing so can save the difference.
you save a move on the ladder if you can find a decent place

down side you don't really own 20% and have to pay more for it when you do come to buy it, but that is the same as if you did a move later.

bigger house comes with some bigger costs.


The real trick with any sort of shared ownership is how you buy yourself out of the trap.
That means increasing income savings or windfalls, rising prices don't really help.

You really need to have that exit nailed within 5 years when the "free" bit stops being free.

getmore4less

lets look at the examples given and make some guesses.

£180k-£200k 95% LTV £750-£800pm
£270k-£280k 75% LTV £600-£650pm


lets go with
£190k £800pm.
35y 4.03% most likely
30y 3.42% great rate
25y 2.42% not a chance at 95% LTV

£210k £650pm
35y 1.57% seems a bit low no chance with a shorter term.


if we go with 35 year term and they are 5y rates
in 5 years time
£190k 4.03% £800pm £167,029
£210k 1.57% £650pm £186,594
£210k 1.57% £800pm £177,237

For the same money you start out with a £20k bigger mortgage and end up with a £10k bigger one.


(NOTE on the 95% you would probably only go for a 2 year deal and get a better rate for the rest of the 5years with a lower LTV)

Thrugelmir

Grimezy93 wrote: »

We also have really good credit reports from previous borrowing that is now pretty much all paid off.

However you've only a 5% deposit saved. Certainly worth spending a few months cutting back and clearing debt / saving. Home ownership comes with additional costs. Don't overburden yourselves with debt. You are both only in your 20's, plenty of time to plan and get it right.