Government loan scheme

Katykat

My son is considering this scheme through Bloor homes. The way I understand it is he puts 5% deposit down, he gets a mortgage of 75% and the government loan him 20%. When he sells, the government then take 20% of the selling price. Have I interpreted this correctly? And are there any pitfalls he should know about?

csgohan4

Katykat said:

My son is considering this scheme through Bloor homes. The way I understand it is he puts 5% deposit down, he gets a mortgage of 75% and the government loan him 20%. When he sells, the government then take 20% of the selling price. Have I interpreted this correctly? And are there any pitfalls he should know about?

you pay back 20% of what the house is worth at the time of paying the loan back, not the price you paid for the home. Basically gov usually gets a profit

grumiofoundation

Presumably by government loan scheme you mean HTB equity loan?
After 5 years your son will have to start paying interest on HTB loan (1.75%).
He can pay the loan off before selling, would then be 20% of current value.
Can't rent out property until HTB paid off.
Also have to consider that, due to the HTB loan scheme, the property may be 'overpriced' relative to non-new builds in same area.


https://www.helptobuy.gov.uk/equity-loan/equity-loans/#:~:text=With%20a%20Help%20to%20Buy,years%20of%20owning%20your%20home.

kingstreet

It's a minimum of 5% deposit, but if affordability is out on the HTB Calculator, a higher deposit may be necessary.

monetxchange

I'm trying to get this at the moment too. Depending on his circumstances (self employed, less than stellar credit, no credit history or anything etc), deposit could be much higher. 5% is the minimum.

The broker I'm talking to has advised me the goal should be to shift the equity loan as soon as possible or save up and remortgage it onto your mortgage before the five years up and you start paying interest. When the interest starts, he could be left paying an extra couple of hundred quid out on top his mortgage every month. It also makes sense to pay it off and get full ownership as if you come to sell, the government take their percentage based on the current value, not what they originally lent. So if you buy for £200k and sell at £300k, they'd get 20% of £300k, not £200k. 

Katykat

monetxchange said:

The broker I'm talking to has advised me the goal should be to shift the equity loan as soon as possible or save up and remortgage it onto your mortgage before the five years up and you start paying interest. When the interest starts, he could be left paying an extra couple of hundred quid out on top his mortgage every month. It also makes sense to pay it off and get full ownership as if you come to sell, the government take their percentage based on the current value, not what they originally lent. So if you buy for £200k and sell at £300k, they'd get 20% of £300k, not £200k. 

So this means that you start paying interest on the 20% loan after 5 years? Any idea of the current interest rate? And is it just interest and you pay the capital out of the final selling price?

billy2shots

Sorry OP I don't want to hijack your thread. 

I was just thinking to myself, if ever HTB was a good idea it could be now. The chance if a house price correction sometime in the next 5 years has got to be pretty likely. If you had the reserved you could pay the government back at a lower amount than you borrowed. Yes your house would be worth less for that to happen but in the long run, happy days. 

Quite a good way of minimising the fallout of falling prices. 

Katykat

sorry grumiofoundation, you answered my query

monetxchange

Katykat said:

monetxchange said:

The broker I'm talking to has advised me the goal should be to shift the equity loan as soon as possible or save up and remortgage it onto your mortgage before the five years up and you start paying interest. When the interest starts, he could be left paying an extra couple of hundred quid out on top his mortgage every month. It also makes sense to pay it off and get full ownership as if you come to sell, the government take their percentage based on the current value, not what they originally lent. So if you buy for £200k and sell at £300k, they'd get 20% of £300k, not £200k. 

So this means that you start paying interest on the 20% loan after 5 years? Any idea of the current interest rate? And is it just interest and you pay the capital out of the final selling price?

Grumiofoundation had it - 1.75%, so a sizeable increase per month. My broker said the focus should be getting rid of the loan before interest becomes payable and well before selling up stage so you don't lose out. He said he'd seen many people coming through him that simply hadn't been advised properly and they hadn't realised they'd have to pay more when the interest kicked in or would lose out when selling, so definitely do your research and numbers.

It is in theory a good time to get help to buy, but it's also a very hard time to get mortgages in the first place to pay the rest, especially on 5% deposits before all other factors.