HTB Query - Interest Rates

davidw123

Hi there,

I'd like some advice regarding my current mortgage and the HTB scheme we used to purchase our first property.

As it stands, we bought a house using 56K of the HTB loan and have overpaid our mortgage for the last three years with an extra £250.00 each month to ensure we are able to remortgage by the end of the fixed term. Our mortgage is a 5 year fix.

I am aware that from year 6 the HTB adds interest @ 1.75% and thereafter each year it increases.

Interest rates go up each year in April by the Consumer Price Index (CPI), plus 2%. 

Year	Interest rate increase calculation	Interest rate
1 - 5	No interest payments	0%
6	Not applicable	1.75%
7	1.75% (year 6 rate) + 0.08% (1.75% x (2.5% CPI + 2%)	1.83%
8	1.83% (year 7 rate) + 0.08% (1.83% x (2.5% CPI + 2%)	1.91%

With the current CPI being 9.4% - does this mean that should it remain as it is; we are looking at approx 11% interest per year? I am confused and its getting me quite anxious as to what it could be should our financial situation ever change.

Would love some advice/correction if i've got this wrong.

K_S

davidw123 said:

Hi there,

I'd like some advice regarding my current mortgage and the HTB scheme we used to purchase our first property.

As it stands, we bought a house using 56K of the HTB loan and have overpaid our mortgage for the last three years with an extra £250.00 each month to ensure we are able to remortgage by the end of the fixed term. Our mortgage is a 5 year fix.

I am aware that from year 6 the HTB adds interest @ 1.75% and thereafter each year it increases.

Interest rates go up each year in April by the Consumer Price Index (CPI), plus 2%. 

Year	Interest rate increase calculation	Interest rate
1 - 5	No interest payments	0%
6	Not applicable	1.75%
7	1.75% (year 6 rate) + 0.08% (1.75% x (2.5% CPI + 2%)	1.83%
8	1.83% (year 7 rate) + 0.08% (1.83% x (2.5% CPI + 2%)	1.91%

With the current CPI being 9.4% - does this mean that should it remain as it is; we are looking at approx 11% interest per year? I am confused and its getting me quite anxious as to what it could be should our financial situation ever change.

Would love some advice/correction if i've got this wrong.

@davidw123 If inflation was 9.4%, the interest-rate from year 7 would be -

1.75% + (11.4% of 1.75%)
i.e 1.75% + (0.1995%)

1.95% is the answer.

All said and done, that's a very good rate compared to current mortgage rates. Even if CPI stays at 10%, the interest rate in year 10 would only go as high as 2.75%.

davidw123

K_S said:

davidw123 said:

Hi there,

I'd like some advice regarding my current mortgage and the HTB scheme we used to purchase our first property.

As it stands, we bought a house using 56K of the HTB loan and have overpaid our mortgage for the last three years with an extra £250.00 each month to ensure we are able to remortgage by the end of the fixed term. Our mortgage is a 5 year fix.

I am aware that from year 6 the HTB adds interest @ 1.75% and thereafter each year it increases.

Interest rates go up each year in April by the Consumer Price Index (CPI), plus 2%. 

Year	Interest rate increase calculation	Interest rate
1 - 5	No interest payments	0%
6	Not applicable	1.75%
7	1.75% (year 6 rate) + 0.08% (1.75% x (2.5% CPI + 2%)	1.83%
8	1.83% (year 7 rate) + 0.08% (1.83% x (2.5% CPI + 2%)	1.91%

With the current CPI being 9.4% - does this mean that should it remain as it is; we are looking at approx 11% interest per year? I am confused and its getting me quite anxious as to what it could be should our financial situation ever change.

Would love some advice/correction if i've got this wrong.

@davidw123 If inflation was 9.4%, the interest-rate from year 7 would be -

1.75% + (11.4% of 1.75%)
i.e 1.75% + (0.1995%)

1.95% is the answer.

All said and done, that's a very good rate compared to current mortgage rates.

Thank you so so so much, you have cleared up alot of uncertainty for me!

As your a mortgage adviser, could please ask - 

So realistically when my fixed term ends - it will be a consideration as to whether the remortage is cheaper then the actual HTB (if interest rates go crazy as predicted)? Obviously the difference here is if house prices go up/down as the actual value the government owns will increase/decrease too due to the 25% rule?

K_S

@davidw123 If you were to remortgage today to a fixed rate, even at 60% LTV, mainstream rates are 3%+ across the board. So they're already significantly higher than the HTB rates. So it's definitely something worth considering when deciding whether to keep or pay-off the HTB loan at remortgage time.

As you correctly point out, the potential trade-off is of course that if the house value goes up, you miss out on a proportion of that rise and it reflects in your HTB final repayment amount as well.

davidw123

Brilliant, thank you very much!