Help to buy - To take on Equity or Not?

davidw123

TIA for reading my post!

I currently have a H2B mortgage that is due to expire in 3 months after a 5 year fix. Having spoken to a broker, we were informed of new processes when remortgaging that include a application to H2B, an admin fee, solicitors required etc, letting us know that the only difference in process when choosing to take on equity was the additional RICS survey required. This is required every time we remortgage. We have a formal appointment next week.

H2B have told us in writing that our interest period will start soon and be £81.00 a month. Our house is valued at 340K, having purchased it for 270K and we currently have 162K left on our mortgage. 

Using your opinions and knowledge can you please discuss with us whether we should take on the additional equity now, or wait until interest rates lower slightly. The thought of going through this process at every remortgage with these additional costs was not expected.

30Year fix at 4.1% would be roughly 780 without the additional 80.
30Year fix at 4.1% with equity would be 1100.00.

Not sure the calculations to consider how we could compare this vs house prices going up and H2B equity therefore increasing.

We are teachers, currently have a wife on maternity leave who will return part time and have 2.5 days childcare costs. When she returns part time our annual household income will be 74K pre tax. (21K from her, 53K from me).

Thank you so much in advance!!!!

amnblog

You do not need to go through this process simply to get a new rate on your main mortgage, nor to switch to a new Lender with the main mortgage.

Only if you are buying our the H2B loan (or part of it) would you need a RICS valuation.

The key issue when buying out is where is the valuation going? Mortgage interest will be a lot higher than that on the equity loan. As a result, if the valuation is increasing it may be worth buy out before the cost of buy out increases. If the value if static or dropping, you shoot yourself in the foot by buying out.

davidw123

I guess I’m trying to establish whether it’s better to wait it out until interest rates maybe drop and then take the equity on, paying the interest in the mean time or just suck it up and pay it now despite higher interest rates.

silvercar

davidw123 said:

I guess I’m trying to establish whether it’s better to wait it out until interest rates maybe drop and then take the equity on, paying the interest in the mean time or just suck it up and pay it now despite higher interest rates.

It depends on whether you think the property value will increase. 20% of a lot more will hurt you more than an increase in interest rates. However, if you don't think the property value will increase by much, maybe because you bought at a new build at an inflated price to start with, then it makes sense to pay the HTB interest separately for the time being.