Help to buy hummer after 25 years

csgohan4 wrote: »

The problem is you won't have a 20% guaranteed increase in equity in 5 years time, once you open the door to your new house, it would have dropped in price much like a new car.

Correct if you open the door to you new house walk in with an Estate Agent and put it straight back on the market to sell it... I also do not know any people who pick up their brand newly registered car and drive it straight to webuyanycar and sell it the next day. I have heard the saying many times that a car will lose 25% of its value as soon as you drive it out of the showroom - a statement that actually means nothing in reality.

RelievedSheff wrote: »

This will be the next big housing scandal!

We already know of people who have no idea what they are going to do in a couple of years when they have to start repaying their HTB loan.

They won't have to start repaying their loan.

After 5 years they start paying interest on the loan and not that much.

In many cases it will still be cheaper than their current mortgage rate.
If the property has gone up the rate will be less than on the equivalent equity should they buy out the loan if it has gone up.

You can in effect get 20% of your property interest free for 5 years and interest only for a further 20y or till you sell or buy it out.

The other advantage for those first 5 years is your rate on the other 75% will be lower than the rate had you borrowed 95%

if you look at the 5y period on £200k 25y term

Pick a lenders rates I will use Barclays 5y rates no fee
3.27% 95% LTV
1.95% 75% HTB


£190k 3.27% £928pm £163,304 £28,978 interest
£150k 1.95% £632pm £125,552 £13,472 interest
£150k 1.95% £928pm £106,914 £12,594 interest


Taking the H2B and paying the same as a 95% mortgage will have you £56,390 ahead on the mortgage with the 20%(initial £40k) HTB to pay off.

That's a ratio of 1.41
if you think your property will go up more than 41% in 5 years take the 95%,
if less take the H2B

How many think HPI is going to be 40% in the next 5 years on a new build?

if you did break even and prices went up 41% you would be remortgage at £163k on £282 58%LTV.

If you had been paying the lower amount it would be £182k on £282k 64% LTV(still decent)

Now if you can't afford the 95% and need the H2B to get the payment down that will impact the equity build up but you still get 20% effectively rent free for 5 years and starting
RPI forecasts remain quite low the rate won't climb that fast.

edit to add

If there was no HPI then after 5 years to buy out

high payment £147k on £200k 74%LTV ( saved £16,400 in interest)
Low payment £165.5k on £200k 83% LTV (saved £15,500 in interest)

Exodi wrote: »

Actually on reflection, you're right. Due to amortisation, chances are they'd have only paid off closer to 10% of the principle at the 5 year mark which means even if they could remortgage the house at the value they previously paid for it, they'll already need to increase their borrowing - which is compounded by going up an LTV band etc.

As you said, should the house be valued at less than it was originally purchased (which isn't unlikely) there could arise the situation where the borrower is unable to meet affordability criteria to increase their borrowing to satisfy the help to buy equity loan.

That said, the interest rate only looks concerning a long way into the mortgage so this issue should hopefully not be an issue in 10-20 years.

A HTB on a 25y term would have generated around 12% equity on original purchase price after 5years

They could pay off 1/2 the HTB and stay on the same LTV as long as the price has not dropped too much.