5 Yr Fixed Mortgage ending with a Help to Buy

ilb013

My daughter purchased a new build in 2019 and took out the 20% Help to Buy deal with a Santander 5 year fixed interest mortgage.

In preparation for next year when the fixed interest finishes (and she realises we don’t know what interest rates might be) should she pay off the Help to Buy before the 5 years expires?

What is better, keep the Help to Buy and pay ongoing interest with a re-mortgage rate or get rid of the Help to Buy debt before it increases with the house value since purchase before taking out a re-mortgage? I believe the Help to Buy increases the same percentage as the value of the house since purchased so say the house is now worth 15% more then the Help to Buy loan would increase by 15% as well if not paid off before 5 years?

There must be a lot of people in this situation since house builders were encouraging 1st time buyers with Help to Buy with Fixed Interest mortgages via their  brokers in 2019.

kingstreet

Regardless of when the HTB loan is repaid, it is based on the value of the property at the time whether inside or outside the first five years. At the moment, property prices appear static, perhaps falling, and interest rates are higher than previously. She has the opportunity, in year six, to pay 1.75% of the HTB loan against a background of little/no house price inflation.

Consolidating the HTB loan into a mortgage at a higher LTV and hence even higher rate may not make much sense at this time. 

renegade1

ilb013 I am in a similar situation to your daughter.... took out a 5 yr help to buy mortgage in late 2018 which is ending soon. I'm re-mortgaging for another 5 years and decided to leave the help to buy loan part in place  for these next 5 years. I'm probably crazy right? I've worked out the help to buy interest replayments based on a somewhat pessimistic view of 7.5% increases per year:

YEAR 6 - 1.75%
YEAR 7 - 1.88%
YEAR 8 - 2.02%
YEAR 9 - 2.17%
YEAR 10 - 2.34%

As you can see even at year 10 it's nowhere near current mortgage rates. However if house prices incrase dramatically over the next 5 years i'll be gutted as i'll have to pay back much more.

Also if i consolidated the HTB loan into the mortgage now then my LTV will be > 80% whereas consolidating on year 10 i'll be closer to 60% LTV (assuming no overpayments over year 6-10 and steady house price increase).

ilb013

Thanks renegade1,

My issue is one of playing "roulette" with house values because the HTB loan will increase with the % increase of the house value since it was purchased. I believe if you change mortgage provider or after the initial 5 years since the HTB was taken out then the house has to be revalued and the HTB loan will be increased proportionately. So if your property increased 15% since the initial purchase then the HTB amount will also increase by 15% in year 6 and the % interest will be on this higher value for the HTB loan.

If you don't pay off then when you come to move you will once again also have to take in consideration again the proportional increase of the house value at that time on the amount of HTB to repay. So a 1.75% - 2.5% interest charge on the HTB loan actually may not be the main issue

amnblog

You are misunderstanding the way the Scheme works. The H2B buy out price is based on an RICS valuation at the time, not on a mortgage lenders valuations at any time.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1143592/Homebuyers-guide-to-Help-to-Buy-Equity-Loan-2021-2023.pdf

chanz4

I found halifax valuation was way out compared to the rics

coypondboy

With many buyers moving to 40 yr terms can the help to buy loan also be moved to 40 yr term to keep repayments low? Also in worst case scenario where in negative equity can you clear off help to buy loan via bankruptcy?

renegade1

ilb013 said:

Thanks renegade1,

My issue is one of playing "roulette" with house values because the HTB loan will increase with the % increase of the house value since it was purchased. I believe if you change mortgage provider or after the initial 5 years since the HTB was taken out then the house has to be revalued and the HTB loan will be increased proportionately. So if your property increased 15% since the initial purchase then the HTB amount will also increase by 15% in year 6 and the % interest will be on this higher value for the HTB loan.

If you don't pay off then when you come to move you will once again also have to take in consideration again the proportional increase of the house value at that time on the amount of HTB to repay. So a 1.75% - 2.5% interest charge on the HTB loan actually may not be the main issue

This is a fair point and something i am worried about too. Btw i cancelled my 5 year and went with a 2 year fix in light of the BOEs decision not to increase the rate.

iib013 you might find this link useful https://www.savills.co.uk/insight-and-opinion/research-consultancy/residential-market-forecasts.aspx - if Savills are right and house prices remain more or less stagnant until 2026 then that might be the best time to redeem the loan. Definitely don't pay it off now while house prices are still falling!!!

darkcloudi

I had a HTB and the rate was to end this month (Oct 2023), but took a gamble last year and redeemed it early, got a 10 year fix at 2.09%. 

I don't think I would redeem at the current rates, but at the same time don't think the lower interest rates will be back anytime soon. I probably would wait it out 2-3 years and see what happens. With higher interest rates and high property prices (and with everything else getting more expensive) I don't think house prices will increase to much as people may stay put and not buy, I think they will increase but at a slower rate, but difficult to say.

Note: Survey will be based on RICS evaluation when you come to redeem, not lender. My lender priced the house higher then the valuation that came back from the RICS surveyor, but I had to pay back HTB/Target on the amount the RICS surveyor stated.