How does help to buy work?

TXC

Hi all

Quick question as I've heard this from multiple EAs selling what were new builds about vendors needing higher prices to cover the HTB they used to purchase.

How precisely does it work? I understand the 5% deposit / 20% loan / 75% mortgage aspect, but when does the gvnmt loan need to begin being repaid? is there a grace period? and if it always increases with value of the house pro rata then surely it will never be cleared?

Feels like a lot of people might have used the scheme and are now trapped needing big sales prices to move?

grumiofoundation

https://www.gov.uk/help-to-buy-equity-loan


Simplistically you borrow between 5 and 20% (up to 40% in london) of the purchase price from the goverment.
You have minimum 5% deposit and get a mortgage fro the rest.

After 5 years you start paying interest on the loan.

When repay the loan* you pay back the % you borrowed based on current house value (not price paid to buy). *e.g if sell property. 

So if buy a 200k house with 5% deposit and 20% loan you would get a mortgage of 150k.

Say after 5 years house is worth 220k you would now have to pay back 44k (20% of 220k).

Another way of paying off loan if you aren't selling is to remortgage and take out a bigger mortgage to pay off equity loan - hoping house has gone up in value to provide equity needed to get this bigger mortgage. 

GDB2222

TXC said:

Hi all

Quick question as I've heard this from multiple EAs selling what were new builds about vendors needing higher prices to cover the HTB they used to purchase.

How precisely does it work? I understand the 5% deposit / 20% loan / 75% mortgage aspect, but when does the gvnmt loan need to begin being repaid? is there a grace period? and if it always increases with value of the house pro rata then surely it will never be cleared?

Feels like a lot of people might have used the scheme and are now trapped needing big sales prices to move?

There’s nothing to pay for 5 years on the equity loan, so people borrowed a lot, to buy overpriced new build homes. Now, they want to sell second hand, but their buyers can’t get an equity loan. 

getmore4less

There are 2 elements to H2B

eg if you take the full 20% with 5% deposit for 5 years
 
20% interest free for 5years
75% at a lower rate than if you had used 95% mortgage. 

For a while there were no 95% mortgages and the rates were high as well not so bad now.

Did an example a while back using rates for Jan 2020

https://forums.moneysavingexpert.com/discussion/comment/76694270/#Comment_76694270

The house would have to have gone up by 41% to be worse off using H2B over buying outright with the 5% deposit.95% mortgage


They only bought 80% of the property and that's what they get out having had the luxury of a lower rate on the 75% they borrowed in the beginning.

in that example earlier 

(£200k over 25y 5% deposit 20% HTB over the first 5 years. 3.27% 1.95%)

20% interest free saved around £6,500 in interest
75% reduced rate saved around £9,700 in interest

if you look at the end result of the 95% and the 75% after 5 year with just the regular payment.

amount	payment	owe	interest
£190,000	£927.91	£163,303.73	£28,978.30
£150,000	£632.14	£125,543.79	£13,471.98

saved £15,500 in interest  before overpayments ~£300pm to match the non h2b mortgage.


To make it simple if we use £700pm payment because that's all that could be afforded.

amount	rate	payment	owing
£190,000.00	3.27%	£700.00	£178,137.80
£150,000.00	1.95%	£700.00	£121,270.51

add back the £40k because value not moved.

H2B better off by ~£17k (before costs)