Help to buy - London - 40% Maximum Equity loan

legend2020

Good evening all,

I can’t seem to find the answer I’m looking for so I’ve decided to create to form. 

I found a Help to buy property which is around £525000,  my mortgage would be £288,750 = £950 a month for 35 years
Equity loan is £210000 = £325 after 5 years and keeps going up. 

I want to ask who has got a help to my in london using the maximum equity loan. I found that it seems impossible to pay back. Would love to hear anyone’s story 

Year	Loan Amount	Interest Rate	RPI + 1%	int x rpi+1	Compound Interest	Balance	Management fee	Annnual Charge	Monthly Charge
	6	210000	1.75%	0	0.00%	1.75%	£3,675.00	12	£3,687.00	£307.25
	7	210000	1.75%	6%	0.11%	1.86%	£3,895.50	12	£3,907.50	£325.63
	8	210000	1.86%	6%	0.11%	1.97%	£4,129.23	12	£4,141.23	£345.10
	9	210000	1.97%	6%	0.12%	2.08%	£4,376.98	12	£4,388.98	£365.75
	10	210000	2.08%	6%	0.13%	2.21%	£4,639.60	12	£4,651.60	£387.63
	11	210000	2.21%	6%	0.13%	2.34%	£4,917.98	12	£4,929.98	£410.83
	12	210000	2.34%	6%	0.14%	2.48%	£5,213.06	12	£5,225.06	£435.42
	13	210000	2.48%	6%	0.15%	2.63%	£5,525.84	12	£5,537.84	£461.49
	14	210000	2.63%	6%	0.16%	2.79%	£5,857.39	12	£5,869.39	£489.12
	15	210000	2.79%	6%	0.17%	2.96%	£6,208.84	12	£6,220.84	£518.40
	16	210000	2.96%	6%	0.18%	3.13%	£6,581.37	12	£6,593.37	£549.45
	17	210000	3.13%	6%	0.19%	3.32%	£6,976.25	12	£6,988.25	£582.35
	18	210000	3.32%	6%	0.20%	3.52%	£7,394.82	12	£7,406.82	£617.24
	19	210000	3.52%	6%	0.21%	3.73%	£7,838.51	12	£7,850.51	£654.21
	20	210000	3.73%	6%	0.22%	3.96%	£8,308.82	12	£8,320.82	£693.40
	21	210000	3.96%	6%	0.24%	4.19%	£8,807.35	12	£8,819.35	£734.95
	22	210000	4.19%	6%	0.25%	4.45%	£9,335.79	12	£9,347.79	£778.98
	23	210000	4.45%	6%	0.27%	4.71%	£9,895.94	12	£9,907.94	£825.66
	24	210000	4.71%	6%	0.28%	5.00%	£10,489.70	12	£10,501.70	£875.14

legend2020

Sorry I tired to paste the equity loan break down. Might be easier if you turn your phone side ways to see it properly if your not using a PC/Laptop

jasdev

Have you used the Homes England Help to Buy Equity Loan calculator or made your own?
https://www.gov.uk/government/publications/homes-england-help-to-buy-equity-loan-calculator-and-guidance
Use the one for Help to Buy (London). It works out what your monthly mortgage repayments + service charge + ground rent + equity loan repayments would be in year 5, assuming a standard variable rate mortgage of 4.80%.

What you'll find is that most expect to remortgage in year 5, in order to pay off the equity loan in full, or they save during years 1 to 5 in order to fully pay off the equity loan.

If you can neither remortgage nor pay the loan off fully in year 5, you will have to sell up, and downsize, unfortunately!
The excellent Locostfireblade mortgage spreadsheet here, a very powerful bit of kit, can be played around with so that you can see the effect of overpaying your mortgage in the first five years, to enhance your chances of remortgaging in year 5, I'd assume.
http://www.locostfireblade.co.uk/spreadsheet/Index.html

But yeah, long story short: have a plan to pay off the equity loan or remortgage to pay it off. As you've found, it can be frightfully expensive to service.

numbercruncher8

IMO taking out Help to Buy to the max is simply living beyond your means. But with nobody really minds (usually young) people doing that.
Some of the core assumptions are that everything increases. Both property value and your earnings. So in theory by the time you are 10 years in and have to find another £500+ a month, your wages may have gone up by way more than this to offset it.

ikanoi

From what I've read, most tend to overpay their mortgage for 5 years then remortgage to pay off the equity loan once the repayments kick in. That may not be feasible at 40% but perhaps could be done to take 20% off, then the final 20% in another 5 years. I am in the middle of the HTB application process now (not in London), I only used it to increase my LTV, rather than buy something I wouldn't be able to afford otherwise so I feel pretty safe as far as being able to remortgage when the time comes.

I recommend you run the numbers properly and err away from getting into a debt agreement that is at the absolute top of your budget but also take that with a grain of salt because in this day and age that sometimes just isn't possible, people that tell you otherwise are generally privileged in some way that they don't realise. You should adjust your expectations to be in line with your budget but if it's a long term investment that you see yourself living in for the next decade then consider that there are positives that just about the figures.