Help to buy vs Just buy

[AyBee]

I'm looking to buy my first place and wonder what the consensus is on which scenario people would go for (numbers are just there as a rough example):

Option 1:
2 bedroom
South East London - e.g. Crystal Palace
Equity: £60k
Mortgage: £340k

Option 2:
2 bedroom
South West London - e.g. Putney
Help to buy
Equity: £60k
Help to buy: £240k
Mortgage: £300k

Both flats are a similar size but option 2 is in a nicer area of London (and comes with parking so I could keep the Lotus ) and therefore more expensive (£400k vs £600k), but help to buy more than covers that and so my mortgage would be reduced, allowing me to over-pay the mortgage more. Obviously the equity loan is interest free for the first 5 years but I'd have to pay off the equity increase on sale (but then a 10% (random number) increase in both would give me £40k in my pocket in the first example, and £36k in the second, so there's not much difference).

Which would you choose? Is a better option to get a bigger mortgage on the second and a smaller equity loan?

[Pintofbest]

I looked at this for a house we are currently buying, this would have been c15% on a £500k house. My main worry was about wanting to pay off the HTB section, rather than the increase in payments after yr5 as that wasn't so bad but it should be cleared once a mortgage is and that was only 15 years away. In the end it was the fact that only a few (at the time maybe) banks did mortgage products to work with HTB and they were at higher rates so we have just mortgaged as normal to save the hassle.

[AyBee]

I guess I can do that as well, but I think the limit is 10% at a time of the house value - so £60k chunks...

[ManicMunky]

Word of warning - prepare for more hurdles when you want to sell.

[Sarnie]

AyBee said:

Help to buy: £240k

^How is that figure derived?

[AyBee]

Sarnie said:

AyBee said:

Help to buy: £240k

^How is that figure derived?

40% of a £600k property (under the new Help to Buy London scheme).

[jdw1234]

Have your lawyer had sight of the legals?

Is the Help To Buy bit non recourse if the property price falls or would you be in negative equity like a mortgage?

[Sarnie]

jdw1234 said:

Have your lawyer had sight of the legals?

Is the Help To Buy bit non recourse if the property price falls or would you be in negative equity like a mortgage?

It's an Equity loan......so the value of it goes up or down with the value of the property.

It's interesting how the FCA have been spending years trying to implement criteria specifically designed to quell the London market (virtually outlawing Interest Only lending, Reduced LTV's & Income Multiples on loans over £500k etc).

And then conversely the government are actively peddling schemes like this that essentially get people into properties they couldn't ordinarily afford in most cases, therefore artificially propping up the market.......making this a London only scheme just shows that they are just wanting to piggy back the London bubble.......

[AyBee]

jdw1234 said:

Have your lawyer had sight of the legals?

Is the Help To Buy bit non recourse if the property price falls or would you be in negative equity like a mortgage?

I haven't had sight of any legals, just been looking at the online site for it. If the house price goes down, the equity loan gets smaller as well, in the same way that they share the gain on the way up, they take the pain on the way down. In simple terms, a 40% equity loan is equivalent to 40% of the equity at any point.

[Hackney]

Sarnie said:

It's an Equity loan......so the value of it goes up or down with the value of the property.

It's interesting how the FCA have been spending years trying to implement criteria specifically designed to quell the London market (virtually outlawing Interest Only lending, Reduced LTV's & Income Multiples on loans over £500k etc).

And then conversely the government are actively peddling schemes like this that essentially get people into properties they couldn't ordinarily afford in most cases, therefore artificially propping up the market.......making this a London only scheme just shows that they are just wanting to piggy back the London bubble.......

I agree, but it's not just a London thing. Limits in London are highter that's all (600k vs 450k IIRC)

[Hackney]

My own question on this is

12% deposit and mortgage the rest or,
5% deposit, 20% HTB, morgage for the rest and use what remains of my "deposit" to pay the mortgage for a bit or pay more of the mortgage.

[AyBee]

Hackney said:

My own question on this is

12% deposit and mortgage the rest or,
5% deposit, 20% HTB, morgage for the rest and use what remains of my "deposit" to pay the mortgage for a bit or pay more of the mortgage.

Isn't that also what I've asked?

[Hackney]

AyBee said:

Isn't that also what I've asked?

I suppose it is in a way, although I read your question as £400k house with mortgage or £600k house with HTB, ie do I use HTB to buy a more expensive house.

Mine's same house using HTB or not. Can I still use HTB if I have more capital than the 5% deposit and use my capital for other things.

[AyBee]

Hackney said:

AyBee said:

Isn't that also what I've asked?

I suppose it is in a way, although I read your question as £400k house with mortgage or £600k house with HTB, ie do I use HTB to buy a more expensive house.

Mine's same house using HTB or not. Can I still use HTB if I have more capital than the 5% deposit and use my capital for other things.

Yes, I was asking that, purely on the basis that I can buy where I currently live (a nice area) if I use HTB, but not if I don't.

In answer to your question, I believe you can still use HTB (as long as the property you're looking at is a new build and the builder has a scheme applicable), but I don't think it would make sense not to put in all the money you have. The HTB scheme is designed for people who can't manage to save up the equity and hence need the deposit in order to buy the house - if you can afford the place you want without HTB, I wouldn't bother with it. You can always do the sums (i.e. HTB makes my mortgage cheaper by £X/month because my LTV is 75% rather than 88%), but your trade off is that if your place increases in value, you'll end up losing more in the equity loan increase over the 5 years than you'll save in the interest on your mortgage. Hope that makes sense