Help to Buy - Repay after 5 years or leave as is?

fiisch

We purchased our house for £599,950 in April 2019 using the Help to Buy scheme (20% interest-free loan for 5 years).  We took a bit of a gamble in that we bought a substantially bigger home with a view that we wouldn't need to move again (I was 31 at the time), so I viewed the repaying of the 20% as our final move up the house ladder so to speak, without actually moving home.

• The house is now worth £700k-750k, so I'm estimating equity loan as being £140-150k to repay.
• Our current mortgage balance is £380k and is in two parts, with one sub-account due for renewal in July and a remaining term of 30 years.  We currently pay £1601/month.
• If we renew the mortgage without repaying, our mortgage will increase to £1900/month.  I think the monthly interest will be £175 (£120k x 1.75%).
• If we repay the Help To Buy loan, our mortgage will increase to c.£2500/month if we extend the term to 35 years.
• So, from my crude maths, it's £2075 monthlies to stay as we are, or £2500 monthlies to repay.
• There seems to be little different in 2 and 5 year fix rates currently.  I haven't considered a tracker as should rates go up, we'd struggle to cover the increase.
• I am 37, married, wife is 35.  I am an IT contractor paid on a day rate via a ltd co., wife is an employee of the company.  We tend to take salaries off £12.5k + dividends of £37k each - the company can't really afford to increase this.
• We have quite high outgoings as will be paying two sets of school fees for another 4 years (roughly £2k/month - we live in a county with 11+, so hope is to send eldest to the local grammar school in 4 years time, which would free up some income).

I am normally very clued up with finances and enjoy modelling things on a spreadsheet, but mortgages are the one financial product I struggle to get my head around.  We are tight with recent cost of living increases, such that I don't think we'd make the same decision re.: school fees and house buying with the benefit of foresight, but we've made the decision and need to see it through.

WWYD?  Is it foolish not to repay the HTB after 5 years?  Is anyone in a similar position?  I am acutely aware we're fortunate to enjoy a decent income and perversely be quite tight financially (we've already made significant cutbacks with cars, lifestyle etc.), and despite being normally quite decisive I've sat on the fence on this one for the last 6 months..!  TIA.

Hoenir

Some observations in terms of future plannng. Easy to kick something into the long grass. 

Is the HTB Loan repayable after 25 years?  If so, the clock is already clicking down. Ultimately the amount you might need to refinance is going to grow. 

Is there a lender that will underwrite a mortgage until you are 72 on the amount you'd need to borrow?  

The HTB interest rate will increase every year by RPI plus 2%. Might start small, will compound as the years pass. 

amnblog

This is all about property values.

If property values are increasing by, say 3%, on a £700,000 property, a years delay puts your buy out bill £4,200 higher.

Buying out now probably costs you £4,200 more in interest over the next year (say 4.75% V 1.75%). 

If the property values are static or falling it costs you more to buy out now.

If the property values are rising it costs you less to buy out now (you can estimate by how much).

If you cannot make your mind up, you can buy out 10% now.

One final factor - a full buy out will give you access to a much wider range of mortgage products.

fiisch

Hoenir said:

Is there a lender that will underwrite a mortgage until you are 72 on the amount you'd need to borrow?  

The HTB interest rate will increase every year by RPI plus 2%. Might start small, will compound as the years pass. 

Halifax, apparently.  Our situation should change dramatically in 4 years, and again in 7 years such that we'd have significantly more spare cash to overpay/remortgage and pay the HTB.  While I don't want to forget about the equity loan, I am leaning towards not repaying at this time given the comparatively low initial interest rate and high current mortgage rates (relatively speaking for last 10 years).

amnblog said:

This is all about property values.

If property values are increasing by, say 3%, on a £700,000 property, a years delay puts your buy out bill £4,200 higher.

Buying out now probably costs you £4,200 more in interest over the next year (say 4.75% V 1.75%). 

If the property values are static or falling it costs you more to buy out now.

If the property values are rising it costs you less to buy out now (you can estimate by how much).

If you cannot make your mind up, you can buy out 10% now.

One final factor - a full buy out will give you access to a much wider range of mortgage products.

Makes sense - my crystal ball suggests we won't see any dramatic house price increase in the next 2 years, although it has been wrong before!  The interest comparison against equity increase is helpful, thank you - I hadn't thought of it in those terms, but with my outlook and those numbers I am inclined to stick as we are and pay the interest on the equity loan, at least for the time being...!