Help-to-Buy Equity Loan advice

slickfonzy

Hi there, I’m new to the MSE forums, so I apologise if I have posted this in the wrong place. I also apologise for the long post!

I’ve recently purchased a new home using the Equity Loan Help-to-Buy scheme. I have since been making monthly payments into a savings account with the aim of using those savings to pay off 50% of the Equity Loan at the end of the 5-year interest free period, and then remortgaging to pay off the remaining 50%. However, I have been considering other possible scenarios, but I’m not sure which would be best. As far as I can see, there are three possibilities:

1) The original plan of saving for 5 years, then using the savings to pay off 50% of the Equity Loan and remortgaging to pay off the remaining 50%; or

2) Saving for 5 years, then using the savings to pay off 50% of the Equity Loan and taking out a personal loan to pay off the remaining 50%; or

3) Stopping the payments into the savings account, and diverting that money into monthly over-payments on the mortgage, then at the end of the 5-year interest free period on the Equity Loan, remortgaging to pay off 100% of the Equity Loan.

I would greatly appreciate any thoughts or advice anyone can give, I have tried running numbers for the different scenarios but I’m struggling to work out which is likely to be the best! My gut feeling is that I would be better diverting the monthly savings towards over-payments on the mortgage, since I’m already incurring interest on the mortgage, but I’m not sure.

If it helps, the figures at the time of purchase (14/12/18) were:

£400,000 purchase price
£20,000 deposit
£300,000 mortgage
£80,000 Help-to-Buy Equity Loan

Since purchase, I have been putting £600 per month into the savings account and making monthly over-payments of £150 towards the mortgage.

Many thanks in advance.

jimmyjammy001

How do you know how much the equity loan will be in 5 years time is probably the most important question, as it rises and falls with the value of your house. If your house stays the same value in 5 years then yes you will pay back 80k,if it goes up in value then so does the help to buy loan as it is done on the value of your house when paying back

kingstreet

This all seems to hinge on the mortgage rate versus the net savings rate. Use that as your determinant.

If the mortgage rate is higher, overpay. If the net savings rate is higher, save.

Thrugelmir

Unlikely you'd obtain a personal unsecured loan for £40k. Not would it be competitive with a mortgage product.

Swami_Trinel

Just resurrecting this thread as, despite a thorough search, this is the closest I've come to finding anything resembling my queries.
We're FTB currently considering HTB equity loan of 15% £36k alongside 5% £12k deposit for a £240k property with my theory being we can put away c£600 per month over 5 years to repay the equity loan at the end of the interest free period - acknowledging that if the property increases in value, we will owe more than £36k and would likely make a part payment.

• I haven't seen this approach advocated anywhere, other than in the OP here so was seeking some thoughts on this from forumites.
• Secondly, I hadn't considered using the £600pm to over pay on the mortgage instead of saving to repay the equity loan and then remortgaging to pay off the equity loan. Having not had a mortgage before, could anyone help me understand how this approach might/might not be more beneficial than squirreling £600 into savings every month?

Many Thanks in advance

EverythingIWant

Overpay mortgage and just remo the equity after the 7th year when it’s starts getting near the 2% interest point  

jaxkesa

With savings rate so low, it would surely be better to overpay on the mortgage and then remortgage towards the end of the HtB interest free period. This is what I did and I ended up getting a low valuation so paid back less than I borrowed.
Swami_Trinel said:

if the property increases in value, we will owe more than £36k and would likely make a part payment.

You can only make a 50% or 100% repayment so this would only work if you have > £18k saved up.