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Help to buy getting outed as a pointless prop...

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Quick thought about the Help to Buy Equity Loans

Fees are charged after the first five years, at which point 1.75 per cent of the value of the loan is applicable. This fee increases on a yearly in line with the Retail Prices Index plus 1 per cent.

If inflation does start to take off there could be some unpleasant bills. You'd want to prioritise this loan which then leaves your still large other mortgage simmering for longer.

 

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4 hours ago, Parkwell said:

Quick thought about the Help to Buy Equity Loans

 

 

If inflation does start to take off there could be some unpleasant bills. You'd want to prioritise this loan which then leaves your still large other mortgage simmering for longer.

 

Assuming ~2-3& inflation, you really should only go for HTB if you could afford to buy without it i.e. have the 25% equity availale after the term.

Otherwise you're fcked.

 

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1 hour ago, spyguy said:

Assuming ~2-3& inflation, you really should only go for HTB if you could afford to buy without it i.e. have the 25% equity availale after the term.

Otherwise you're fcked.

 

"I was missold guv, nasty government tricking poor old me on my 600k purchase."

If theres enough of them and they can gain the media narrative + corbyn, I could see it happening

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Htb the compound growth 5h1tstorm, it seems that if inflation even hits the 2% target people will be in trouble.

No doubt sold that muggings can consolidate the loan at the end of the term and pay off the htb loan with a bank loan?

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7 hours ago, Parkwell said:

Quick thought about the Help to Buy Equity Loans

 

 

If inflation does start to take off there could be some unpleasant bills. You'd want to prioritise this loan which then leaves your still large other mortgage simmering for longer.

 

I suspect that many, if not most, who have taken out HTB believe that the equity loan will never have to be repaid and that it is, in effect, a grant from the taxpayer. And if things do indeed start to get unpleasant then who is to say they are not right? It's just another bail out.

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It might turn out like car leasing.

When the bigger bill is due, i.e. extra payment on 20% loan after 5 years (instead of final cash payment for a car), they sell the house and buy again with another 20% equity loan. In many cases it could just be being used as Help to Rent, the 75% mortgage might be cheaper than market rent and has security of tenure.

The problem is.... what if too many want to sell at the same time and the buyers won't have the 20% equity loan ignored.

 

 

Edited by Democorruptcy

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Is the extra fee 1.75% * ( RPI + 1%) not 1.75% + RPI + 1% ? So it's not as bad as it could be but might be enough to tip some JAMs over the edge?

Edited by Democorruptcy

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Apologies for being contrarian, but surely if you believe, like most of us on here, that a major price correction is imminent then an equity loan like Htb is a far better deal than a standard mortgage? (even without the interest free period)

But with Htb and get the benefit of home ownership but if the market crashes the government eats 40% of the losses and you don't hit negative equity 

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37 minutes ago, Upabove said:

Apologies for being contrarian, but surely if you believe, like most of us on here, that a major price correction is imminent then an equity loan like Htb is a far better deal than a standard mortgage? (even without the interest free period)

But with Htb and get the benefit of home ownership but if the market crashes the government eats 40% of the losses and you don't hit negative equity 

By Government you mean us the tax payer 

New development just gone up by me heavily advertising htb which is enabling them to charge 400k for a 3 bed house in Luton...its a disastrous policy  

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59 minutes ago, Democorruptcy said:

Is the extra fee 1.75% + ( RPI + 1%) not 1.75% + RPI + 1% ? So it's not as bad as it could be but might be enough to tip some JAMs over the edge?

It's the first option.

Assuming RPI of 3% and using the maximum 600k house price the annual fee, starting in year 6 would be:

Yr 7 - £2,100, Yr 8 - £2,184, Yr 9 - £2,271... etc.

Of course, double it if you've gone for 40% in London.

The capital becomes due after 25 years, irrespective of the principal mortgage.

The interest rate is officially zero for the first 5 years, but the size of the HTB loan increases relative to the value of the property. So if HPI is 10% it's like borrowing 120k on a credit card, if prices fall then the size of the loan falls. The fee starting in year 6 remains static irrespective of HPI.

If prices go down in the first few years then you obviously have to repay less but then potentially stuck in negative equity when your current mortgage fixed rate expires. If prices go up then you owe more on the HTB element but you will have an easier time remortgaging and can repay the HTB element through traditional bank lending at a more sensible LTV.

Lots of conditions in the HTB equity loan like no major house improvements / extensions etc. without prior approval until the HTB element is repaid. If it is given, however, they do remove the nominal HP increase due to the extension when calculating what their original share is worth.

All sounds unnecessarily complicated, what could possibly go wrong?

 

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6 minutes ago, jb5000 said:

It's the first option.

Assuming RPI of 3% and using the maximum 600k house price the annual fee, starting in year 6 would be:

Yr 7 - £2,100, Yr 8 - £2,184, Yr 9 - £2,271... etc.

Of course, double it if you've gone for 40% in London.

The capital becomes due after 25 years, irrespective of the principal mortgage.

The interest rate is officially zero for the first 5 years, but the size of the HTB loan increases relative to the value of the property. So if HPI is 10% it's like borrowing 120k on a credit card, if prices fall then the size of the loan falls. The fee starting in year 6 remains static irrespective of HPI.

If prices go down in the first few years then you obviously have to repay less but then potentially stuck in negative equity when your current mortgage fixed rate expires. If prices go up then you owe more on the HTB element but you will have an easier time remortgaging and can repay the HTB element through traditional bank lending at a more sensible LTV.

Lots of conditions in the HTB equity loan like no major house improvements / extensions etc. without prior approval until the HTB element is repaid. If it is given, however, they do remove the nominal HP increase due to the extension when calculating what their original share is worth.

All sounds unnecessarily complicated, what could possibly go wrong?

 

Too many moving parts.

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25 minutes ago, Nabby81 said:

By Government you mean us the tax payer 

New development just gone up by me heavily advertising htb which is enabling them to charge 400k for a 3 bed house in Luton...its a disastrous policy  

Some list the price (on Rightmove) less the HTB contribution with a small note in the text that without HTB the price will be commensurately higher, as if HTB was a gift from the government.

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1 hour ago, Democorruptcy said:

Is the extra fee 1.75% + ( RPI + 1%) not 1.75% + RPI + 1% ? So it's not as bad as it could be but might be enough to tip some JAMs over the edge?

Isn't it 1.75% * (1 + (RPI% + 1%) ? In which case it would hit ~ 4% in year 20 if RPI was 3%. Doesn't look that bad to me at all.

Edited by Richmond

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49 minutes ago, Nabby81 said:

By Government you mean us the tax payer 

New development just gone up by me heavily advertising htb which is enabling them to charge 400k for a 3 bed house in Luton...its a disastrous policy  

Oh as a taxpayer I completely agree, just pointing out that for consumers an equity loan has some advantages, particularly in a falling market.  However the poor uptake of the scheme might then just reflect the continuing belief by the public in hpi+++ forever :(

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I was asked to help a really stupid couple negotiate with the builders on a new development, about 7 years ago. Lots of young couples walking round the demo home commenting on the important stuff, like the curtain pattern and bedspread.

They couldn't sell these places fast enough using whatever prop it was, I think it must have been help to buy, there was no negotiation.

When I asked the woman what happens if this couple buy with a standard mortgage, she basically bent over the desk and asked me to be gentle. I've never understood how the building company lost out with help to buy, if anyone can enlighten me that would be good!

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2 hours ago, Richmond said:

Isn't it 1.75% * (1 + (RPI% + 1%) ? In which case it would hit ~ 4% in year 20 if RPI was 3%. Doesn't look that bad to me at all.

It's all a bit vague. It says here:

What happens with the 20% Equity Loan after the first five years?

The equity loan is interest free for the first five years. After that, you will pay a fee of 1.75%, rising annually by the increase (if any) of the Retail Price Index (RPI) + 1%.

https://www.helptobuyese.org.uk/more-information

Edit to add I edited my earlier post to multiplication not addition which makes more sense 

Edited by Democorruptcy

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10 minutes ago, Democorruptcy said:

It's all a bit vague. It says here:

What happens with the 20% Equity Loan after the first five years?

The equity loan is interest free for the first five years. After that, you will pay a fee of 1.75%, rising annually by the increase (if any) of the Retail Price Index (RPI) + 1%.

https://www.helptobuyese.org.uk/more-information

Edit to add I edited my earlier post to multiplication not addition which makes more sense 

It is usually a throw away comment. MSE agrees with that calculation. Also only on the initial amount. So if HPI you pay less and less interest as your loan increases. HPC and your interest rate swells as your loan drops. But either way, it doesn't feel like a crippling rate.

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2 hours ago, jb5000 said:

The capital becomes due after 25 years, irrespective of the principal mortgage.

I didn't know that, if so it could definitely have misselling written all over it.

 

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Indeed... it's an interest only mortgage where the loan also grows with the value of the house! The worst of both worlds.

Also - if you want to repay you have to repay at least 10% of the value of the property. A really sizeable chunk, thus disincentivising early repayment to the HTB agency.

Realistically I think it's set up as a pyramid scheme that only really works if there's continuous HPI. Wait until the mortgage + HTB equity loan is 80% LTV and you expect that most people would remortgage, if they can afford it, and pay off the HTB element.

Thus savouring all the glorious further HPI for themselves..... or.... not!

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The payments aren't necessarily crippling. They are suggesting a typical APR of 5.2% after five years. But we know how unexpected things can and do occur. I'd also imagine that if the housing market and economy stagnate for over decade after your loan, which is possible, then this would not be a good loan to be carrying as part of a very large mortgage. If there's a crash in the first 5 years you could be quids in but there's a lot of risks. Does seem like a complicated, pointless prop that does more to keep people in debt than help them actually own. (this is the first time I've read some of the terms because I'm opposed to the scheme on principle regardless)

 

Info on pages 18 and 21 of the linked pdf here

https://www.helptobuy.gov.uk/equity-loan/equity-loans/

 

htb.png

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1 hour ago, Parkwell said:

The payments aren't necessarily crippling. They are suggesting a typical APR of 5.2% after five years. But we know how unexpected things can and do occur. I'd also imagine that if the housing market and economy stagnate for over decade after your loan, which is possible, then this would not be a good loan to be carrying as part of a very large mortgage. If there's a crash in the first 5 years you could be quids in but there's a lot of risks. Does seem like a complicated, pointless prop that does more to keep people in debt than help them actually own. (this is the first time I've read some of the terms because I'm opposed to the scheme on principle regardless)

 

Info on pages 18 and 21 of the linked pdf here

https://www.helptobuy.gov.uk/equity-loan/equity-loans/

 

htb.png

Those payments are on a £40k equity loan but it could be as much as £240k using 40% in London. Payments 6 times higher might at least need a walking stick?

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Just to note, everything online points to the HTB loan 'must' be paid up by the end of year 25 which isn't exactly correct. If you, for whatever reason, have not cleared the HTB loan by year 25 and your mortgage is for 35 years (10 over the HTB loan) then the HTB loan repayment period is extended for the full mortgage term, ie 35 years.

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And the interested you pay on the HTB loan will always by tied to the amount borrowed when you first took out the HTB loan and does not move with the movement of house price inflation.

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11 minutes ago, Scramz said:

Just to note, everything online points to the HTB loan 'must' be paid up by the end of year 25 which isn't exactly correct. If you, for whatever reason, have not cleared the HTB loan by year 25 and your mortgage is for 35 years (10 over the HTB loan) then the HTB loan repayment period is extended for the full mortgage term, ie 35 years.

25 year mortgage is the Max term you can get on HTB

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