Help to Buy questions

[Type R Tom]

Has anyone considered the Help to buy scheme? I’ve been doing some maths recently to see if it’s worth while, my main concern is the drop in value of new builds once you own them, there appears to be a hit like buying a new car before the value starts to rise. Before I start going to see estate agents I want the numbers correct in my head

Also, I’m not too good at maths, can anyone write an interest formula for excel based on the terms and conditions of the loan? The loan is interest free for first 5 years, which would match a 5 year fixed deal I’d go for. From year six a fee of 1.75% is payable on the equity loan, which rises annually by RPI inflation plus 1%.

Using the following as an example:

Full Price of house: £215,999
Price with equality loan (the mortgage you need): £161,996
Equity Loan from the government £43,199
My deposit £10,799

This allows you to get a 75% mortgage and therefore better rates. Assuming I looked at a 10 year plan, so the £43199 would be paid off over 120 months, without interest that would be £359.99 per month. Using the information above, how much interest would you pay, the current RPI is 3.3%. Obviously there is no way of knowing which way the interest rate will go.

Is it possible to re-mortgage your house to pay the government off? Has anyone used the scheme? I’ve more questions than answers!

[Sarnie]

Type R Tom said:

Has anyone considered the Help to buy scheme? I’ve been doing some maths recently to see if it’s worth while, my main concern is the drop in value of new builds once you own them, there appears to be a hit like buying a new car before the value starts to rise. Before I start going to see estate agents I want the numbers correct in my head

Also, I’m not too good at maths, can anyone write an interest formula for excel based on the terms and conditions of the loan? The loan is interest free for first 5 years, which would match a 5 year fixed deal I’d go for. From year six a fee of 1.75% is payable on the equity loan, which rises annually by RPI inflation plus 1%.

Using the following as an example:

Full Price of house: £215,999
Price with equality loan (the mortgage you need): £161,996
Equity Loan from the government £43,199
My deposit £10,799

This allows you to get a 75% mortgage and therefore better rates. Assuming I looked at a 10 year plan, so the £43199 would be paid off over 120 months, without interest that would be £359.99 per month. Using the information above, how much interest would you pay, the current RPI is 3.3%. Obviously there is no way of knowing which way the interest rate will go.

Is it possible to re-mortgage your house to pay the government off? Has anyone used the scheme? I’ve more questions than answers!

You are correct that New Builds suffer immediate depreciation. This is because that they are usually well over priced in the first place by builder to include any incentives that they are offering like carpets, white goods, lawns, furniture or deposit contributions etc. This is why lenders don't like New Builds and generally restrict the LTV on these properties.

Don't forget though, that if the price of the property decreases, then so does the value of the equity loan!

Although the LTV would effectively be 75%, don't assume the rates will be the same as standard 75% rates as the Help to Buy products are only available via selected lenders and are priced accordingly.

To answer your question, yes you can remortgage to repay the equity loan. However you are going to need to obtain an LTV of 90% and considering the immediate depreciation of New Builds that probably wipes out your 5% contribution, you'd be needing to inject another 10% into the property just achieve the 90% LTV. Your mortgage balance will have reduced, but as ever, the valuation figure is going to be the issue for you.

If I was you I'd be trying to research the pricing curve of similar new build properties.