Help to buy hummer after 25 years

gj373

What has always puzzled me is if someone can't afford the full mortgage payment so has to go down HTB route how can they afford to save money each month to pay off the equity loan?

[Deleted User]

gj373 wrote: »

What has always puzzled me is if someone can't afford the full mortgage payment so has to go down HTB route how can they afford to save money each month to pay off the equity loan?

HTB EL isn't a bad product providing you go in with your eyes wide open and have an exit strategy much like interest only mortgages weren't a bad product as long as people had a plan for repaying the capital.

Exodi

Lover_of_Lycra wrote: »

HTB EL isn't a bad product providing you go in with your eyes wide open and have an exit strategy much like interest only mortgages weren't a bad product as long as people had a plan for repaying the capital.

I think this may be 'Interest Only Mortgages - Season 2'.

When people come to sell their houses in 20 years time, suddenly realising they are set to lose a whack of equity, it'll change to 'I was mis-sold the equity loan, I didn't realise I'd have to pay it back'

Rocksolid

We all agree there

kingstreet

gj373 wrote: »

What has always puzzled me is if someone can't afford the full mortgage payment so has to go down HTB route how can they afford to save money each month to pay off the equity loan?

You can afford the full mortgage payment. HTB doesn't cure lack of affordability it cures the lack of deposit which is usually 15% on a newbuild house, more on a newbuild flat.

The difference between the payments on the full mortgage and the HTB mortgage should be saved or overpaid to create the possibility of an exit route from HTB in future.

NBLondon

foxy-stoat wrote: »

I have heard the saying many times that a car will lose 25% of its value as soon as you drive it out of the showroom - a statement that actually means nothing in reality.

Yes - it's a theoretical position for most people. But it highlights the possibility that if your circumstances change unexpectedly and you need the money so you have to sell the car then you will only be able to do so at a significant loss even if you have only driven it for a fortnight and 50 miles. Applies whether you bought it outright or on a finance deal (which has to be paid off at the original agreement price)

So for HTB.... It seems to be designed for those who do not yet have the money for a significant deposit but expect to be in a better position in 5 years time and can save up. If you are in the early stages of a career with a good expectation of moving up the ranks and salary scales then it will work as long as you do plan in that saving. If you don't have that plan (and spend all your money on avocado on toast and fancy coffee:p) or there's not a realistic chance of improving your situation then you will get the nasty shock. If your plan works - you can re-mortgage at the right time and you've had the advantage of already living in the property for 5 years rather than with your parents. If your plan goes awry (or agley if you prefer) then you will be stuck.

Rocksolid

What many people also don't know is to pay an income insurance, as at the 1st career problem you meet you are screwed like a butter bolt, especially if you take the H2B alone, like me.

getmore4less

gj373 wrote: »

What has always puzzled me is if someone can't afford the full mortgage payment so has to go down HTB route how can they afford to save money each month to pay off the equity loan?

You don't need to.

The lack of deposit is the problem as small deposits == higher mortgage rates.

as shown earlier the HPI needs to be 41% over 5 years to be worse off with H2B against a 95% mortgage(depends on interest rates)

After the first 5 years(on a 25y term 2%) you have paid off 12% of the initial equity(8% on 35y term) that gets you part way there,if the value has not moved you can do 1/2 the loan(same 75%) LTV and rent the other 10% at around the mortgage rate or pay off the lot and go to 85% LTV which will be a bit more and a slightly higher rate

If the cost with H2B is around the same as renting H2B gets you into a house years earlier for similar costs, for some it is less that renting gives them saving a options.

If there is HPI that can have you needing to borrow more than you started which can be an issue for those that have not improved their finances(higher pay).

AS the load interest rate kicks in at a decent 1.75% but increases with RPI, you will get around another 5years(on current rates) before the rate on the loan becomes less competitive, if rates start rising and there is flat HPI there may be a case for keeping the loan even longer rather than paying it off.

ethank

getmore4less wrote: »

They won't have to start repaying their loan.

After 5 years they start paying interest on the loan and not that much.

In many cases it will still be cheaper than their current mortgage rate.
If the property has gone up the rate will be less than on the equivalent equity should they buy out the loan if it has gone up.

You can in effect get 20% of your property interest free for 5 years and interest only for a further 20y or till you sell or buy it out.

The other advantage for those first 5 years is your rate on the other 75% will be lower than the rate had you borrowed 95%

if you look at the 5y period on £200k 25y term

Pick a lenders rates I will use Barclays 5y rates no fee
3.27% 95% LTV
1.95% 75% HTB


£190k 3.27% £928pm £163,304 £28,978 interest
£150k 1.95% £632pm £125,552 £13,472 interest
£150k 1.95% £928pm £106,914 £12,594 interest


Taking the H2B and paying the same as a 95% mortgage will have you £56,390 ahead on the mortgage with the 20%(initial £40k) HTB to pay off.

That's a ratio of 1.41
if you think your property will go up more than 41% in 5 years take the 95%,
if less take the H2B

How many think HPI is going to be 40% in the next 5 years on a new build?

if you did break even and prices went up 41% you would be remortgage at £163k on £282 58%LTV.

If you had been paying the lower amount it would be £182k on £282k 64% LTV(still decent)

Now if you can't afford the 95% and need the H2B to get the payment down that will impact the equity build up but you still get 20% effectively rent free for 5 years and starting
RPI forecasts remain quite low the rate won't climb that fast.

edit to add

If there was no HPI then after 5 years to buy out

high payment £147k on £200k 74%LTV ( saved £16,400 in interest)
Low payment £165.5k on £200k 83% LTV (saved £15,500 in interest)

This is a good article, however most lender will expect 90% LTV or below on a new build property. We really struggled to find one. Do the numbers come out different?

Rocksolid

ethank wrote: »

This is a good article, however most lender will expect 90% LTV or below on a new build property. We really struggled to find one. Do the numbers come out different?

When you say 90% LTV you mean that the bank consider only what you take from them? Or it considers also the loan in the percentage, in the way that a 5% deposit is not enough in this case?