Help to buy London

Ybe

Has anyone here had experience of help to buy London? I am a bit wary of the amounts you’re looking at with help to buy London. In rural areas, the equity loan amount is fairly minimal (maybe around 20k) but in London, it can easily hit 6 figures. 

K_S

@ybe What exactly are your concerns? I have had clients that used the 40% HTB equity loan.

Most of them have been young professionals buying flats who could reasonably expect to see a substantial boost in income in 5 years to be able to comfortably remortgage and pay off the equity loan, if they wished to do so.

Not everyone chooses to pay it off though as the interest rate is pretty reasonable for the first few years after it kicks in.

Ybe

K_S said:

@ybe What exactly are your concerns? I have had clients that used the 40% HTB equity loan.

Most of them have been young professionals buying flats who could reasonably expect to see a substantial boost in income in 5 years to be able to comfortably remortgage and pay off the equity loan, if they wished to do so.

Not everyone chooses to pay it off though as the interest rate is pretty reasonable for the first few years after it kicks in.

I have 2 concerns. First concern is if I decide to sell in the next 5 years or so, I could end up in negative equity if the value of the property goes down (being new build and help to buy, there is an inflation - ones I’ve looked at in London are inflated about 11% of the average resale prices on the area for similar properties). 

Second concern is the exit strategy if I decide to stay there and not move. I would be looking at an equity loan of around 100-140k. That’s a large amount to pay off (even if the value of the property stays the same). Even with a 10k pay rise, I likely would not be able to pay that off in 5 years. Maybe I could pay off less than half of it, assuming a 10k pay rise in the next 5 years.  

K_S

@ybe Your concerns are reasonable. With regard to negative equity, no one can predict what will happen with house prices and flats in London, so if that is a major concern it might be best to steer away from new-builds altogether.

If you decide to stay on, from year 6 the H2B interest kicks in at 1.75% (so about £146 of interest a month on a 100k equity loan) and then climbing annually by CPI+2% (so assuming CPI is 3%, year 7 interest rate will be 1.84%, then 1.93% in year 8 and so on.

Whether those interest rates are palatable, what you expect inflation to be like, etc are subjective and something you need to consider when deciding whether this is for you or not.

Ybe

K_S said:

@ybe Your concerns are reasonable. With regard to negative equity, no one can predict what will happen with house prices and flats in London, so if that is a major concern it might be best to steer away from new-builds altogether.

If you decide to stay on, from year 6 the H2B interest kicks in at 1.75% (so about £146 of interest a month on a 100k equity loan) and then climbing annually by CPI+2% (so assuming CPI is 3%, year 7 interest rate will be 1.84%, then 1.93% in year 8 and so on.

Whether those interest rates are palatable, what you expect inflation to be like, etc are subjective and something you need to consider when deciding whether this is for you or not.

I think I have a slight more concern on the exit strategy of if I decide to stay in the property for a long time. I then risk (in the worst case scenario), rising interest rates on mortgage repayment in addition to rising interest rates on the htb, as well as thoughts on how to pay off the 100k equity loan. 

The other option I’ve considered is to wait until I get a pay rise (quite likely within next 5 years) and then resales would be more easily within reach (assuming that property prices don’t rise dramatically in that time).