To help to buy or not....

droiderm

Hi.

We have started looking at new builds even though we discounted that from a size point of view initially.

We have lived in a new build for 6 years previously, so understand the pros and cons.

We are currently in rented, after moving across country.

We have around a 40k deposit and although I have always been against help to buy, now I am giving it some small consideration.

The price is 275k , to buy it without help to buy we would need to them to knock 5 percent off.

Then we would be borrowing 220k.

The other option would be help to buy, assuming the full asking price we would be :
13,750 our deposit.
55,000 equity loan.
206,250 mortgage amount.

This would result in 26,250 to over pay (or staircase).

If we over paid 500 per month for 5 years we would probably have aroubd 141k left on the mortgage. But still owing the 55,000 equity loan. That overpayment would cost 30k, I am sure we could find the extra on top of the remaining deposit.

That would potentially leave us with 50 percent LTV assuming house prices of course . Which I assume would be easily remortgable to pay off the equity loan ?

Is it sensible to even consider help to buy? Is there anything else I need to consider? I guess house prices could go down or up a lot (which would mean more equity loan to pay back).

Thanks

asm89

You don't have to take the full 20% equity loan as I understand it. Its better to provide more of a deposit and take less of the loan

What are your salaries?

droiderm

Our salaries are around 65k combined.
I have been through affordability calculators many times.

It just kind of feels to some extent that taking advantage of the 0 percent (I know house price growth may make that no the case) and overpaying the mortgage makes some sense.

But there are variables which make it less clear.

jaybeetoo

droiderm wrote: »

The price is 275k , to buy it without help to buy we would need to them to knock 5 percent off.

Make them an offer. No harm in trying.

chanz4

Don't forget when comes to repay its 20% of house value, plus about 1500-2k to pay it off in fees

droiderm

For example paying 275,000 and using our 40k deposit , after 5 years we would owe approx 200k.

This is a while lot more than owing 141k plus the assumed 55k equity loan (I know it may be higher).

This is probably down to a lower interest rate using help to buy and overpaying.

There is also the bonus of a lower mortgage payment in the first 5 years.

I need to do some more robust calculations. But it seems like a good idea initially.

asm89

To be honest, as it's a new build and you've got the cash, the value is going to drop in the coming years from the purchase price. So you could take advantage of that and staircase 10% next year at a lower value.

There's the chance the value may increase but generally unlikely

droiderm

Ah actually it's 196 k vs 200k.

droiderm

Using the extra 150 per month (comparing mortgage payments ) on the help the buy mortgage would knock the amount owed down to 133k after 5 years.

Remorgaging for the extra 55k would be 188k. Versus the using our deposit and paying the higher mortgage at 200k.

That would on paper leave us 12k in the black, at least on paper.

It's not as clear as that in some ways.
But it seems largely sensible.