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One in Seven HTB homes lose value

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1 hour ago, Clarky Cat said:

7 in 7 over the next few months!


Imagine if 1% falls are indicative of where this market is going.

Soon potential buyers will clearly know that 5% will evaporate in a few months and you will have a mortgage and a government loan.

Are even desperate people going to go for it then.

Edited by Fromage Frais
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Interesting article, key section quoted below. Although the average HBT was resold for more than the purchase price, the increase appears to be approximately half that of the general market, so they are much more exposed to losses now prices in general are dropping as if between 2014 and 2019 prices increased 35%, if they now fall 20% you're still up in nominal terms and about flat in real terms. For HTB with a 17% increase from 2014-2019, a 20% fall means you're negative on nominal, let alone real terms. And for more recent purchases the problem is even more acute. By the end of this year, the likelyhood is that on average a post 2015 HTB will be selling for less than the initial price. 



However, the amount of profit made has fallen over the years. By April 2019, more than half of equity loans taken out in the scheme’s first year (2013-14) had been repaid, with an average profit of 17%. By way of comparison, average house prices in England increased by 35% in the same period. Fast forward two years to homes bought in 2015-16 and 19% of loans have been repaid. The average profit on repaid loans was 9%, compared with an 18% increase in overall house prices.

Read more: https://www.which.co.uk/news/2020/06/exclusive-one-in-seven-help-to-buy-homes-lose-value-despite-local-house-prices-soaring/ - Which?


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The London conundrum

If your Help to Buy property has fallen in value and you’re worried about losing money when you sell, you could simply stay put.

But this can be expensive too, as interest payments kick in on Help to Buy equity loans after five years. Rates start at 1.75%, and rise by the level of the Retail Prices Index (RPI) plus 1% each year after that.

It might not sound too bad, but consider Help to Buy homeowners in London, where instead of the standard 20% you can borrow up to 40% of the property value from the government. Three quarters (77%) have opted to do this.

In a slow property market with little if any growth in house prices, homeowners face significant struggles to pay back these loans before interest kicks in.


Our calculations show that in year six, buyers who’ve taken out the maximum loan of £240,000 face paying £4,200 in interest on top of their mortgage and, if they’re in a flat, service charges and ground rent.

My bold. That’s gotta hurt. Then an extra 1% + RPI a year thereafter (up to 5 years I think from memory)

edit - it’s not capped at 5 years, it’s in perpetuity ?

Edited by bomberbrown
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I had a spreadsheet with the interest costs on a while ago. 

The interest in the 5th year on the HTB loan is negligible at 1.75% and the increase is only 1% + RPI so the 6th years interest would still  be only  1.82%. (assuming RPI = 3%)

The real killer is for those who have spent it on £400 car leases, take-out, holidays etc. One loses their job & the fixed-rate on their mortgage ends and they are screwed. < I think this describes a lot of people who have bought a newbuild in the last 5 years. 

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In a slow property market with little if any growth in house prices, homeowners face significant struggles to pay back these loans before interest kicks in.

What has the change in value of houses got to do with how quickly a person can pay off a loan?

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