Concerns over HTB repayment aspect

Graham_Devon

Thousands of homeowners with Help to Buy loans will face a squeeze on their finances as the first fees fall due to the government next month, experts have warned.

Under its flagship Help to Buy equity loan scheme, the government offered borrowers an equity loan of up to 20 per cent of the value of a newly built home, or 40 per cent in London.

Although the loans are interest-free for five years, after that borrowers must begin to pay a fee of 1.75 per cent of the value of their loan, increasing each year by RPI plus 1 per cent.

The Resolution Foundation, a think-tank, said the fees presented "a ticking time bomb" for families who held Help to Buy loans.

The Ministry of Housing, Communities and Local Government published an evaluation of the scheme in partnership with Ipsos Mori and the London School of Economics in February 2016 after interviewing lenders, borrowers and developers.

It found that although close to 60 per cent of borrowers said they had a great deal of understanding about the financial commitments involved in taking out the loan, lenders were concerned that borrowers did not fully understand the loan.

Having to write to those who took HTB loans to ensure they are aware of the terms of the loan? Seems all too familiar with the Interest Only issues and PPI issues.

While the fee's may sound small in comparison to total mortgage costs, the fear is over interest rates increasing at the same time as the repayment of the HTB loan kicking in.

However, I do have to ask - how can lenders be concerned now? Surely they did their due dilligence?!

https://www.ft.com/content/633f5bc4-1e2b-11e8-956a-43db76e69936

Carl31

the fee isnt that small, depending on how much your % is it could mean having to find another £100+ a month to pay in interest, that could be a lot for some people, enough to make them struggle

But, there are solutions, add the loan to existing mortgage and extend the term, for example, or move house and pay back the loan. After 5 years, a bit of equity will have been paid down on the house, which means the buyer is in a much better position to look elsewhere in the market

If after 5 years you haven't planned properly to something you signed up to, then you only really have yourself to blame. We have taken a HTB loan, it was very clear what the arrangement was when we took it out

enthusiasticsaver

I am afraid a lot of people don't think beyond the immediate future when they sign up to these deals and presumably most HTB people either live in a very expensive area or are people who perhaps could not really afford property ownership. Carl31 is obviously an exception;);)

It is also human nature to be optimistic and assume that no one will get sick or lose their job or die and that their wages in 5 years time will be a lot higher and interest rates won't go up and house values will increase. As we know that is rubbish so yes I do think a lot of people will become unstuck. 1.75% does not sound a lot but for people with crippling debt and who have maybe lost income due to maternity leaves, childcare costs etc it could mean the difference between keeping the house or having to sell up and return to renting.

Mistermeaner

enthusiasticsaver wrote: »

I am afraid a lot of people don't think beyond the immediate future when they sign up to these deals and presumably most HTB people either live in a very expensive area or are people who perhaps could not really afford property ownership. Carl31 is obviously an exception;);)

It is also human nature to be optimistic and assume that no one will get sick or lose their job or die and that their wages in 5 years time will be a lot higher and interest rates won't go up and house values will increase. As we know that is rubbish so yes I do think a lot of people will become unstuck. 1.75% does not sound a lot but for people with crippling debt and who have maybe lost income due to maternity leaves, childcare costs etc it could mean the difference between keeping the house or having to sell up and return to renting.

what's your point?

HAMISH_MCTAVISH

ilovehouses wrote: »

I've lost track of the number of ticking time bombs that have failed to detonate. This looks like another.

:beer::beer:

westernpromise

One thing you have to give property shorts - they never give up hope. The next benign disaster is always just around the corner, but only for other people.

missplant

I have a HTB loan and knew from day one that I would be selling in year 5, pay back the loan and hopefully move onto something better.

westernpromise

missplant wrote: »

I have a HTB loan and knew from day one that I would be selling in year 5, pay back the loan and hopefully move onto something better.

Well done you.

Thrugelmir

ilovehouses wrote: »

I've lost track of the number of ticking time bombs that have failed to detonate. This looks like another.

Interest only naval mines are slowly heading back towards the shore.