Overpay mortgage or pay off help to buy equity loan?

MiseryChastain

sal_III wrote: »

That a common misconception and major pitfall that so many people fall for.

If you plan to stay in the property for more than 10 years the HTB equity loan will almost guaranteed to cost you way more than a mortgage to repay. Even if there is a minor dip in property prices due to Brexit, overheated markets and whatnot, the prices will recover in less than 5 years, your property is almost guaranteed to cost way more in 10 year than it costs now. Meanwhile from year 5 you are paying interests at what is now mid-market rate. So after the 5th year any increase in the property value is a direct loss, compared to a mortgage.

I won't call that "exceedingly cheap"

As I understand it from your previous posts, you have a HTB loan.

What is your strategy, are you overpaying mortgage ?

kingstreet

Using the numbers in the example given in the HTB Buyers Guide and PWE supplied when the ATP is issued (which are based on inflation running at 5% pa) the rates in year six and onwards remain within current new mortgage product rate scope and if rates increase in future may end up lower than the market option.

The rates in years 6-10;-

1.75%
1.86%
1.97%
2.08%
2.21%.

The bottom line is HTB requires a degree of vigilance in keeping a watchful eye on mortgage rates and the value of the property to ensure a sensible exit strategy.

sal_III

MiseryChastain wrote: »

As I understand it from your previous posts, you have a HTB loan.

What is your strategy, are you overpaying mortgage ?

I do, but since i plan to live in the property for the next 10 years at least, my plan is to get rid of the equity loan ASAP. I won't have saved a 10% chunk of it in the next 3-4 years most likely. After that it all depends on how the property prices trend in the area and how much equity I will have by year 6-7. At which point I will most likely remortgage to repay the remainder of the equity loan. Really want it gone by year 8-10 but at 40% it will be a tough task. If the price skyrockets I will most likely just sell, rather than !!!! money away on interests on the equity loan long term.

I will only overpay the mortgage if at year 3-4 the prices have jumped significantly (10-15%) to save on mortgage interests in the next several years before I make the final decision to sell or re-mortgage to repay the equity loan. If the prices remain steady or dip I will clear 10% chunk of the equity loan the moment I have the money saved up.

MiseryChastain

sal_III wrote: »

I do, but since i plan to live in the property for the next 10 years at least, my plan is to get rid of the equity loan ASAP. I won't have saved a 10% chunk of it in the next 3-4 years most likely. After that it all depends on how the property prices trend in the area and how much equity I will have by year 6-7. At which point I will most likely remortgage to repay the remainder of the equity loan. Really want it gone by year 8-10 but at 40% it will be a tough task. If the price skyrockets I will most likely just sell, rather than !!!! money away on interests on the equity loan long term.

I will only overpay the mortgage if at year 3-4 the prices have jumped significantly (10-15%) to save on mortgage interests in the next several years before I make the final decision to sell or re-mortgage to repay the equity loan. If the prices remain steady or dip I will clear 10% chunk of the equity loan the moment I have the money saved up.

That's so interesting thank you.

You say that obviously you will keep your eye on value over the next few years to inform your decision. May I ask how you are doing that? Would that be just running Zoopla searches on other flat sales in your building? Or would you get a formal valuation every few years?

A year on from my new build purchase, I can't see what its current value is likely to be as there have been no sales (understandably as it's so new) and they're going on the original off-plan sales data.

getmore4less

It costs to buy out equity loans any rise has to cover that as well as the interest saving.

sal_III

I bought in a rather large development that is set to continuously expand in the next 10 years, producing ~100 flats each year. So it won't be that difficult, keeping an eye on the new builds price plus any 2nd hand flats from the fist phases of the development going back to 2015-2016 that already start popping up on RM/Zoopla.

It's not worth paying for RISC valuation if you are not going to do a repayment.

And who knows if the HTB equity loan scheme still exists in 5 years, we might upgrade to a larger place and get another 5 years interests free

TrickyDicky101

sal_III wrote: »

That a common misconception and major pitfall that so many people fall for.

If you plan to stay in the property for more than 10 years the HTB equity loan will almost guaranteed to cost you way more than a mortgage to repay. Even if there is a minor dip in property prices due to Brexit, overheated markets and whatnot, the prices will recover in less than 5 years, your property is almost guaranteed to cost way more in 10 year than it costs now. Meanwhile from year 5 you are paying interests at what is now mid-market rate. So after the 5th year any increase in the property value is a direct loss, compared to a mortgage.

I won't call that "exceedingly cheap"

If one assumes that house price inflation is zero (as the OP asserted in her circumstances) then the only cost will be the HTB loan interest after year 5 which IS exceedingly cheap.