HTB and staircasing - how is the interest calculated?

Goldust

Hi,


Looking at a few options for moving to a new build and HTB seems like a good option. We are looking to sell my house and use the equity as our deposit.


Anyway, the question I have is related to the interest. I've read that you only pay interest based on the original loan amount regardless of changes in the valuation of the property. But how does this work if you are "staircasing"?


I've got an example in my head:

• I owe £50k when the interest free period ends after 5 years
• House value over this time has gone up 10% so I'd need to pay £55k at that moment in time to settle

If I staircase £30k at that moment in time, what amount is my ongoing interest calculated on?


Are future increases in house value only applied to whatever my outstanding amount is?



It's a bit confusing as the house value could go down after the first staircase event. The examples on the HTB site don't go into that kind of detail.

TrickyDicky101

You can only redeem in 10% chunks for HTB (so either 10% or 20% (ie full payback) of the original house cost) so the question does not arise.

If you redeem 10% then you only have a single 10% chunk of the original cost of the house on which to suffer the interest.

Goldust

Thanks. So the percentage increase on the house value is only applied to the portion of the loan I settle at that point in time?


It does say you can pay any amount you want over 10% so I think my example is still valid.


So if I want to pay £30k off a £50k HTB loan, the £30k is subject to the increase in house value at that moment in time. So I pay for the valuation then the amount is calculated on that.



Anything that remains is serviced by me in the form of monthly interest only payments.


If I then want to settle whatever remains, the same rules apply again.

TrickyDicky101

I've read the guide and you are right - 10% is the minimum but higher amounts are possible.

The guide does not specifically address the situation you outline but does talk about 'outstanding loan percentage' which I would take to mean if you staircase £30k off of an original £50k equity loan you need a valuation (by an independent valuer) to guide what proportion of the current market value that £30k represents. Let's pretend it represents 12% of the current market value then I believe (note it's my opinion rather than hard fact) that you would need to make interest payments on:

£50k * (20% - 12%)/20% = £20,000

going forwards.