Selling a help to buy property

tom.quayy

Hi
I am considering using the help to buy scheme to purchase my first property in London. After doing a lot of research i am still not quite sure if it is a good idea. I understand how the scheme works eg: 5% deposit, 40% equity loan, interest free for the first 5 years and then you have to start paying interest on the 40% equity loan etc etc.

Its been mentioned a lot that people will be screwed over once the 5 years is up because obviously the original 40% equity loan will increase/decrease in comparison to the properties value. But what if you want to sell up?

My question is, is it really that bad of an idea if you plan to sell up at 5 years?

I did some brief/ estimated maths to try and figure it out..

so lets say for example you want to purchase a property at 300k using the help to buy sceme.
5% deposit = 15k
40% equity loan = 120k
55% mortgage = 165k

Lets say for arguments sake you pay your mortgage at 9k a year (inc fees). So after 5 years, you've paid roughly 45k. Mortgage outstanding is 120k.

You decide to sell up and the value of the property has increased..(so does the 40% equity loan). Property is now valued at 320k. Therefore making the 40% equity loan = 128k.

320k minus the 128k minus the 120k, leaving you with 72k deposit for your next property and what else you have managed to save. Thats a profit of 12k no?

Mortgage figures are just a guesstimate.

da_rule

I’m in agreement with you, if you plan to sell within 5 years then help to buy seems like a good idea. It’ll enable you to get a better mortgage deal (as you’ll have a lower LTV).

The difficulty will arise if you can’t/don’t sell within the 5 years.

comeandgo

I would add 20,000 back on your mortgage. The first few years most of your payment goes on interest.

AnotherJoe

tom.quayy wrote: »

Hi
I am considering using the help to buy scheme to purchase my first property in London. After doing a lot of research i am still not quite sure if it is a good idea. I understand how the scheme works eg: 5% deposit, 40% equity loan, interest free for the first 5 years and then you have to start paying interest on the 40% equity loan etc etc.

Its been mentioned a lot that people will be screwed over once the 5 years is up because obviously the original 40% equity loan will increase/decrease in comparison to the properties value. But what if you want to sell up?

My question is, is it really that bad of an idea if you plan to sell up at 5 years?

I did some brief/ estimated maths to try and figure it out..

so lets say for example you want to purchase a property at 300k using the help to buy sceme.
5% deposit = 15k
40% equity loan = 120k
55% mortgage = 165k

Lets say for arguments sake you pay your mortgage at 9k a year (inc fees). So after 5 years, you've paid roughly 45k. Mortgage outstanding is 120k.

You decide to sell up and the value of the property has increased..(so does the 40% equity loan). Property is now valued at 320k. Therefore making the 40% equity loan = 128k.

320k minus the 128k minus the 120k, leaving you with 72k deposit for your next property and what else you have managed to save. Thats a profit of 12k no?

Mortgage figures are just a guesstimate.

Much more that a guesstimate, completely off target because of the £45k you've paid, the vast majority will be interest. There will be mortgage calculators you can use which will tell you how much but I'd guess 2/3 will be interest. So you might have paid £15k off not £45k . Find a calculator and see.

AdrianC

tom.quayy wrote: »

Its been mentioned a lot that people will be screwed over once the 5 years is up because obviously the original 40% equity loan will increase/decrease in comparison to the properties value.

Funny definition of "screwed over"...

Nobody has to use HtB if they don't like the terms.

I did some brief/ estimated maths to try and figure it out..

so lets say for example you want to purchase a property at 300k using the help to buy sceme.
5% deposit = 15k
40% equity loan = 120k
55% mortgage = 165k

Lets say for arguments sake you pay your mortgage at 9k a year (inc fees). So after 5 years, you've paid roughly 45k. Mortgage outstanding is 120k.

After 5yrs of a typical 25yr £165k mortgage, you will still owe £142k - £148k if it's 30yr.
https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/

You decide to sell up and the value of the property has increased..(so does the 40% equity loan). Property is now valued at 320k. Therefore making the 40% equity loan = 128k.

320k minus the 128k minus the 120k, leaving you with 72k deposit for your next property and what else you have managed to save. Thats a profit of 12k no?

You're overthinking it.

60% of £20k growth is £12k. Call it "profit", if it makes you happier.

tom.quayy

Thanks for the replies and the more realistic mortgage values. As anything could literally happen with house prices rising/ falling. Do you think this is a good way to get on the property ladder if your aim is to sell up at 5 years? (Hoping that the property won’t be to hard to sell). I know this is a possibility and a risk. But bearing in mind, by 5 years I would have gained a promotion at work and also saved more, plus whatever I’m left with when selling the property.

This might be a hard question to answer as people will have mixed opinions.

AdrianC

It's quite simple.

Do you need the HtB in order to buy? If so, then it's a choice of buying 60% of the equity now, or not buying at all.

If not, then it's a question of whether the HtB is good value, compared to a larger mortgage. You're betting on whether the 5yrs 0% interest you save is going to be more or less than the increase in the 40% equity.

tom.quayy

Yes unless I travelled a lot further out. I’m betting on how easy/ hard it’s going to be to sell at 5 years, in comparison to other new builds being built in the surrounding areas, general property prices in the same area of this HTB property, other people who are thinking to also sell up at 5 years (in my same apartment block, if I do go for one).

kingstreet

Get proper mortgage illustrations (ESIS) and they show you the outstanding balance at the end of each year so you can see a clearer picture.

Once you have that, you will at least have a firmer footing to work from when you start making assumptions.

diggingdude

Remember anyone buying yours won't be able to use help to buy so you may actually lose quite a bit of money if you need to sell