Pros and Cons of new build Help to Buy

Grandad99

A young family member and partner with a baby on the way want a house of their own. Local rents for a 2 bedroom house start at £ 800 a month.

A new build, just about possible with family help for part of the deposit, is £900 a month. With a standard mortgage the price is £370,000.

Over the years I've read various articles about Help to Buy and have the impression that they have a lot of disadvantages as time passes.

Can anyone point me to a comprehensive review of them?

csgohan4

You will end up paying more back than you received potentially and you are likely to be over paying for the privilege of a new house which will likely drop in value as soon as you step in

foxy-stoat

Can you not buy an older house for less money - or are you struggling with the deposit.

jennhg88

In my opinion HTB has pushed up the price of new builds so they are mostly unaffordable without HTB.

If house prices rise, you will still pay back the same percentage of house price you borrowed, so could easily end up paying back a lot more than you borrowed and lose out on equity in the property.

Tufa

And this can also turn out to the opposite way as well.. If the house prices drops, but the loan % remains, you will own less.
If you go for H2B, you should either use the flat as a "temporary" solution and stay in no longer than 5 years (you will have more equity if the price increases, even if you pay back the increased loan), or at 5 years remortgage with the H2B included.

In 5 years time many things can happen, however I can hardly imagine that the prices will shoot out again...

If you buy this house out of London, I assume you will use 20% H2B and 5% deposit.
£370000 purchase price
£18500 5% deposit
£74000 H2B Loan
£277500 75% loan (quick calculation on 2.4%, 30 years, plus £999 mortgage fee added to the loan)
After 5 years the price of the house lets say will be £450k and you want to sell. You will have £244829 loan from the 75% mortgage, £90000 for the H2B leaving you £115171 minus fees, etc.. Still lot more than what you have paid in initially.

The same in London with 40%
£370k purchase price
£18.5k 5% deposit
£148k H2B London
£203.5k Loan (quick calculation on this, better rates available, so did with 2.14%, 30 years, £999 added to the loan)
After 5 years, price again at £450k, H2B loan £180k, mortgage £178.8k, leaving you £91k before fees.

IF the prices goes down, because of whatever will happen if it will and your flat will worth £350k, then the London example will leave you with only £31k. If it goes to £300k, then you might "loose" money.. But I'd be surprised if this would happen..

You do the math, just make sure you have plans before the interest kicks in..