How to invest to prevent the H2B hammer after 5 years

Rocksolid

tim_london said:

@Rocksolid  Your explanation and link to calculator assumes you will pay both the mortgage and HTB hammer as separate loans repayment.  Nobody does that (or at least plan to) - most HTB borrowers will want to consolidate their loans into a single mortgage again at year 5.  
Imagine you reached year 5 now, you can remortgage at 60-75% LTV (i.e with enough money to pay back HTB) at 1.2% 2 year fixed - it's a no brainer.  

@droiderm  I agree cash flow security helps, but your calculation assumes your security sits in a no-interest current account.  Why not put it in an easy access savings account that would give you at least 1% interest?  Then the offset is even smaller.  

I still need clarifications sorry.

They are 2 different entity, the bank and the government, how can I remortgage them together as you say?

Or how much do you expect to receive in both cases as mortgage per month at year 5? (supposing I don't put down a sum in five years)

tim_london

Mortgage per month is dependent on the mortgage term anyway.  The lowest could be 40 years if you qualify.  You can change that at any time, although you may need to pay ERC if you are in a fixed deal.

When you remortgage you can ask to borrow money out that you paid in.  People do this all the time for paying back credit card bills/decorating/building work/holidays/car etc.
Think of it as debt consolidation.  

That’s why the question is who’s rate is lower.

getmore4less

droiderm said:

I am looking ahead 5 years ahead too.  I am going to likely take 64k equity loan. We are also going to have an additional 30k savings at the beginning of the mortgage.

Sure, I could have taken less HTB, but I do think "interest free" for 5 years is quite compelling. I appreciate there is some financial  overhead with that.

I was convinced I was going to overpay 500 pm for the first 5 years. I like the security of having the 30k, slowly diminishing over the 5 year period.

After looking at overpayment calculators it looks like I would only be around 1k in the up, vs keeping the 30k until year 5.

I did expect it to be more than that, perhaps as the interest rates are so low.

So I am on the fence wether to keep the 30k as security or look at the 1k gain. 1k is 1k I guess but it's not a big of a win as I initially thought. 
 

The trade off for the interest free bit is will it be enough to cover the potential increase in value of that bit?

Once you go for H2B  the  saving is the not just the 5 years interest free on 20% it is a lower rate on 75%

when I did the numbers in Jan the rate options were 
3.27% 95% LTV
1.95% 75% HTB
so for each £100k  of house you got these savings taking the H2B 
£20k  interest free worth around £3270.
£75k interest reduced by 1.32% £4950
feed that back in for the 20% increasing in value and you can get the break even house rise.

When you can throw more up front the rates comparison would be lower that 3.27 reducing the savings 
eg using barclays a gain the H2B would be  1.99%  and say 85% 2.95% or 80% 2.25%

Thrugelmir

droiderm said:

So I am on the fence wether to keep the 30k as security or look at the 1k gain. 1k is 1k I guess but it's not a big of a win as I initially thought. 
 

If the property increases in value then 10% of that gain is payable to the Government. 

droiderm

Thrugelmir said:

droiderm said:

So I am on the fence wether to keep the 30k as security or look at the 1k gain. 1k is 1k I guess but it's not a big of a win as I initially thought. 
 

If the property increases in value then 10% of that gain is payable to the Government. 

And the opposite applies too i guess ?
I am not in the game of predicting house prices in 5 years time, especially not in the current environment with covid and brexit.

I think with the "new build premium" and the current economic circimstances, if I were pushed, I don't expect the government to be receiving a large dividend from me.
But, it is what it is.

I think given getmore4less calculatioms re lower interest it still seems like the right choice.

getmore4less

Even if prices do go up there is quite a lot of protection with the savings of the lower rate.

Those Jan rates you had 41% house rise protection built in with the savings, they would be lower with a smaller rate differential. 

For many the stumbling block is the deposit so you are comparing 95% against HTB 75% rates with 5% up front.
if income could support the 95% rate  then the H2B works as the exit strategy is save/overpay
when the income and deposit are an issue then H2B can still work well as long as you think there will be another exit like pay rises.

Once you  can put 15% up front the numbers are not as good.
if there was a 2% 85% & H2B 75% rate you lose the saving from the rate difference and lower the interest free period savings to around £1,000/£100k the protection* built in drops to 10% on the 10% H2B portion with the other H2B costs taking the regular mortgage could well be the less complicated choice.

* there is the investment saving to add to the 10%, held back, each 1% adds 5% protection to price rises.

Rocksolid

tim_london said:

Mortgage per month is dependent on the mortgage term anyway.  The lowest could be 40 years if you qualify.  You can change that at any time, although you may need to pay ERC if you are in a fixed deal.

When you remortgage you can ask to borrow money out that you paid in.  People do this all the time for paying back credit card bills/decorating/building work/holidays/car etc.
Think of it as debt consolidation.  

That’s why the question is who’s rate is lower.

Wait, so people when they "remortgage", do they ask also a loan in the meantime??? That's new for me...

Is this to lower the monthly payment too?

Rocksolid

getmore4less said:

droiderm said:

I am looking ahead 5 years ahead too.  I am going to likely take 64k equity loan. We are also going to have an additional 30k savings at the beginning of the mortgage.

Sure, I could have taken less HTB, but I do think "interest free" for 5 years is quite compelling. I appreciate there is some financial  overhead with that.

I was convinced I was going to overpay 500 pm for the first 5 years. I like the security of having the 30k, slowly diminishing over the 5 year period.

After looking at overpayment calculators it looks like I would only be around 1k in the up, vs keeping the 30k until year 5.

I did expect it to be more than that, perhaps as the interest rates are so low.

So I am on the fence wether to keep the 30k as security or look at the 1k gain. 1k is 1k I guess but it's not a big of a win as I initially thought. 
 

The trade off for the interest free bit is will it be enough to cover the potential increase in value of that bit?

Once you go for H2B  the  saving is the not just the 5 years interest free on 20% it is a lower rate on 75%

when I did the numbers in Jan the rate options were 
3.27% 95% LTV
1.95% 75% HTB
so for each £100k  of house you got these savings taking the H2B 
£20k  interest free worth around £3270.
£75k interest reduced by 1.32% £4950
feed that back in for the 20% increasing in value and you can get the break even house rise.

When you can throw more up front the rates comparison would be lower that 3.27 reducing the savings 
eg using barclays a gain the H2B would be  1.99%  and say 85% 2.95% or 80% 2.25%

Thanks but I don't follow your calculations, despite I partially understood how you made them.

Anyway my mortgage is less than 2%, unless they didn't mention something on the paper they gave me... So that + H2B.

Rocksolid

Thrugelmir said:

droiderm said:

So I am on the fence wether to keep the 30k as security or look at the 1k gain. 1k is 1k I guess but it's not a big of a win as I initially thought. 
 

If the property increases in value then 10% of that gain is payable to the Government. 

How did you end up to say that? Are you referring to interests? Remortgage?

What is this about?

grumiofoundation

Rocksolid said:

Thrugelmir said:

droiderm said:

So I am on the fence wether to keep the 30k as security or look at the 1k gain. 1k is 1k I guess but it's not a big of a win as I initially thought. 
 

If the property increases in value then 10% of that gain is payable to the Government. 

How did you end up to say that? Are you referring to interests? Remortgage?

What is this about?

The HTB equity loan - when you repay it you repay 10% of the value of the current value of the house (assuming you borrowed 10%), not 10% of the purchase price. If you borrowed 20% you repay 20% of current value.