Help to buy scheme

mvb17

Hi there, sorry for being so stupid.... (London area) 

So I have 2 options to buy  a 1 bed property at 240,000 - and I can afford a 10% deposit

Or 

I have option 2 - buy a 2 bed property at 340,000 - I can just afford under 10% deposit, however there is the option to take a help to buy scheme.
Should I take this as the bank can offer me 290,000, the rest I would have to add in cash. 

Is the help to buy scheme worth it? Or does it cripple you at the end - as if I take a 20% equity loan - that would mean a value of 68,000 that has to be paid in 5 years. Which means monthly payments of 1133 PCM....

So should I just abandon the 2 bed plans and go for the 1 bed affordable option. 

I unfortunately don't have any ISAs  

Belleofthebooks

"Should I take this as the bank can offer me 290,000, the rest I would have to add in cash."
 
If you have 50k in cash then no need for the HTB.


"Is the help to buy scheme worth it? Or does it cripple you at the end - as if I take a 20% equity loan - that would mean a value of 68,000 that has to be paid in 5 years. Which means monthly payments of 1133 PCM...."

The loan is interest free for 5 years, after that you would start paying monthly payments with added interest of 1.75% in year 6.




 

I used the HTB equity loan for my first property. We got our feet on the property ladder, a better rate on our mortgage which meant cheaper monthly payments. 

You have to factor in the loan when the 5 years are up and you start paying interest on it. You need to make sure you are able to afford those monthly payments. You could also remortgage and buy HTB out. 

We are now selling our house and are going to redeem the full amount to help to buy so we won't have one on our next home but I'd still recommend it.
For us it was 100% worth it, it meant getting on the property ladder sooner, our mortgage rate was better, and even if we were paying monthly payments after 5 years it STILL would have worked out way cheaper than renting.

MovingForwards

Please carefully read info on H2B

https://www.gov.uk/affordable-home-ownership-schemes/help-to-buy-equity-loan

You pay back 20% of the market value at the time, not of the value you borrowed. It could be higher or lower than your original borrowed amount.

mvb17

I see I understand that 

1. it is the mArket value of the property when one comes to buy the property - it may go up or down in value

2. however, the point still remains although the help to buy scheme helps you to afford a better property, and hve cheaper mortgage rates 

it still needs to be paid at the end of the 5 years …. 

And even if it allows you for the first 5 years to get mortgage payments of around £700 pcm, after 5 years the full HTB loan has to be paid (unless one wants to pay interest on that equity loan) and the full 68,000 has to be paid which means apart from mortgage payments saving up an additional £1000 per month 

I just dont see how ‘worth it it is ‘
aa ultimately one gets a bigger property but you’re still saving £1700 per month - the £700 you’re legally obliged to pay to the bank and the £1000 saving up in your account to your discretion to pay the equity loan at the end of 5 year holiday…..

correct me if i’m wrong !

Belleofthebooks

mvb17 said:

I see I understand that 

1. it is the mArket value of the property when one comes to buy the property - it may go up or down in value

2. however, the point still remains although the help to buy scheme helps you to afford a better property, and hve cheaper mortgage rates 

it still needs to be paid at the end of the 5 years …. 

And even if it allows you for the first 5 years to get mortgage payments of around £700 pcm, after 5 years the full HTB loan has to be paid (unless one wants to pay interest on that equity loan) and the full 68,000 has to be paid which means apart from mortgage payments saving up an additional £1000 per month 

I just dont see how ‘worth it it is ‘
aa ultimately one gets a bigger property but you’re still saving £1700 per month - the £700 you’re legally obliged to pay to the bank and the £1000 saving up in your account to your discretion to pay the equity loan at the end of 5 year holiday…..

correct me if i’m wrong !

Yes it needs to be paid off after the 5 years...in full or in monthly instalments with interest. 

It's not for everyone, but you need to decide how "worth it it is" for you. 

kingstreet

The equity loan is only "paid-off" by paying either one or two lump sums; 100% at once, or two lots of 50%. You don't pay monthly instalments with interest. After five years, you pay monthly instalments of interest, or fees as they are known. The monthly payments on a £68k loan will be £99 in year six. Assuming inflation of 5%, in year seven the monthly fees will be £106 using a rate of 1.87%.

You do need an exit plan - either to reduce or repay the HTB loan as soon as you can but you also need to consider the property market prospects as you repay more if the property value increases, less if it drops. You can make voluntary overpayments on your mortgage to reduce the balance/interest leaving you a bigger equity gap to remortgage the HTB loan later, or if you can get a better savings rate, save for the HTB loan repayment.