H2B Scheme - My options ?

dippa

I'm looking to buy using the H2B scheme and my main goal is to get it paid off.

Am I best to pay more than the 5% deposit to have a smaller equity loan, or to have a smaller mortgage?
My original plan is to pay a 7.5% deposit to allow me to have a 17.5% equity loan, leaving me with a 75% mortgage.

What is my best option to get this equity loan paid off ?

I understand it's no interest for 5 years, am I best to overpay on my mortgage or save the money in a savings building up interest.

Any advice is appreciated

Goldust

I'm interested in this too and am in a similar position.



From what I have worked out so far, you would be better overpaying the mortgage unless you can find a savings account that pays a better interest rate than your mortgage rate (which I think is impossible).


Although I will have a decent deposit, I'm thinking of maxing out the equity loan at 20% and minimising whatever I put on the mortgage initially (as that will accrue interest).


I would probably look at a 5 year fix to run in line with the 5 year interest free period on the equity loan, overpaying the mortgage where I can.



Then in 5 years, remortgage and pay off the equity loan. The risk of course is that property prices go up substantially in that time. But then your property is worth more so you will have gained your own equity in theory so you should be able to attract the better interest rates available at the time.


I'm very new to all of this and this is what I've learned so far but there are some great experts around in here. Just wanted to say I'm in a similar boat and share what I've found so far

jonesydave

The more equity you can put into the property at the start the better. If you can afford 7.5% then do that. It's only no interest if the property price doesn't change over the next 5 years.

But consider solicitors charge extra fees when using the help to buy equity loan as it requires extra work, and when you come to repay the equity loan you will have further solicitor and valuation fees. So although 'interest free' you will have at £500+ of costs even if the property price doesn't change.

sal_III

Take as less equity loan as possible. Although interest free, you repay % of the property value, which is likely to be higher in 5 years. In any case it's a gamble.

There are a number of savings accounts with better rates than some mortgage rates, meaning that you are better off putting the money there and repaying the equity loan ASAP, instead of overpaying the mortgage, at least IMHO.

If you plan to sell the property in the nest 5-7 years just ignore the equity loan redemption and just repay it during the sale.

Goldust

Jonesydave makes a better point that me (I said I was new to this!).


I just put the figures into a quick spreadsheet and even based on a modest 2% house price increase year on year, you lose out massively the longer you stay in the scheme. With a 5% increase year on year your HTB debt is more than doubled after 10 years (assuming you don't staircase at all).



I guess the only unknown is if house prices fall. But it feels like a better gamble to minimise your HTB exposure than to hope that they don't go up.


The only temptation for me is the affordability of the monthly payments may be challenging if I don't get some HTB support. In terms of deposit I should be OK.