How to invest to prevent the H2B hammer after 5 years

Rocksolid

What investment plan would you choose to increase the steak needed to pay back the equity loan after 5 years?

Due to the short investment time, considering the long term ones, I would go for something with more bonds that usual, something like around 40% bonds and 60% shares, or 60% bonds and 40% shares.

I may also consider to increase the time to 6 years, but only if I'll be in bad waters, because in the end you just pay the interest every month, you don't pay part of the equity loan... So you just pay for nothing and it can be very high if you took something like 20% (something like 70-120 pounds per month), which is the maximum outside London, at this point I would ask the 10% max, is it possible?

Kiwistrawb1990

We are just saving £500 a month to pay it back in one go at the end of the 5 years. 

Rocksolid

Kiwistrawb1990 said:

We are just saving £500 a month to pay it back in one go at the end of the 5 years. 

Thanks for your contribution, but why do not invest? 5 years is a good time frame to invest!

You may want to follow this discussion

Thrugelmir

Overpay the mortgage for the 5 years then refinance. Investing is for the longer term. As market prices rise and fall like the tide. There's no guarantee of the outcome in exactly 5 years time. 

Rocksolid

Thrugelmir said:

Overpay the mortgage for the 5 years then refinance. Investing is for the longer term. As market prices rise and fall like the tide. There's no guarantee of the outcome in exactly 5 years time. 

Thanks, but what do you mean with the 1st sentence?

RetSol

Rocksolid said:

Thrugelmir said:

Overpay the mortgage for the 5 years then refinance. Investing is for the longer term. As market prices rise and fall like the tide. There's no guarantee of the outcome in exactly 5 years time. 

Thanks, but what do you mean with the 1st sentence?

See https://www.moneysavingexpert.com/mortgages/mortgages-vs-savings/. 

Thrugelmir

Rocksolid said:

Thrugelmir said:

Overpay the mortgage for the 5 years then refinance. Investing is for the longer term. As market prices rise and fall like the tide. There's no guarantee of the outcome in exactly 5 years time. 

Thanks, but what do you mean with the 1st sentence?

Pay down the mortgage. This creates additional equity in the property. Which will enable you to remortgage and settle the HTB loan. 

Rocksolid

How can you pay down the mortgage after 5 years?

I won't have this money in 5 years...

I can remortgage anyway after the fixed period, which is good to keep at 2 years, not even 5, or you can't sell the house if you have to, that "fixed" it's also a commitment towards the bank that needs to suck interests.

I didn't understand the rest of the sentence, what about the house equity with the equity loan (H2B)? How these 2 play together as you said after 5 years?

tim_london

House prices don't rise 5-10% anymore.  Especially with HTB, your new build is likely to dip in value for 2 years before catching up.  In 5 years the value may go up but not by much.

In this case, the 1.65% at year 5 and even the next few years could be much more attractable than bank rate.  We can't predict the future but don't discount keeping the HTB interest is a bad thing.

The only way to prepare is to overpay (if you can) into the mortgage now and make sure your LTV is at 55% by year 5 so that if you remortgage and decide to pay back HTB you are effectively looking at a '75% LTV product'.  If you make a risk in investment and the market tanks like in March or you get furloughed there is no guarantee you can get a remortgage at high LTV.

Don't forget remortgaging is not free, solicitor fees and surveying cost money as well as time.

grumiofoundation

Rocksolid said:

What investment plan would you choose to increase the steak needed to pay back the equity loan after 5 years?

Due to the short investment time, considering the long term ones, I would go for something with more bonds that usual, something like around 40% bonds and 60% shares, or 60% bonds and 40% shares.

I may also consider to increase the time to 6 years, but only if I'll be in bad waters, because in the end you just pay the interest every month, you don't pay part of the equity loan... So you just pay for nothing* and it can be very high if you took something like 20% (something like 70-120 pounds per month), which is the maximum outside London, at this point I would ask the 10% max, is it possible?

What will be the amount of HTB loan?

How much will you be able to save/invest each month towards it?

As said above investing over 5 years carries risk.

If your aim to to pay of HTB loan ASAP why not just save/overpay the mortgage (which is 'better' would depend on a myriad of factors) with the amount needed to pay off (plus ~10% to factor in house rises - obviously dependant on where in the country you are but quite conceivable over 5 years price will barely rise).

If you wish to invest rather than paying off loan planning for a longer timescale would probably be sensible.

*You aren't paying for nothing - you have been able to buy a house you otherwise wouldn't have been able to afford...

Kiwistrawb1990

Rocksolid said:

Kiwistrawb1990 said:

We are just saving £500 a month to pay it back in one go at the end of the 5 years. 

Thanks for your contribution, but why do not invest? 5 years is a good time frame to invest!

You may want to follow this discussion

Thanks for your patronising reply! I checked back on this thread and judging by the replies from those in the know, our way of saving and overpaying on our mortgage is probably the best route