Here at Hawke Financial, the beginning of the year has seen an influx of enquiries from young and old alike as the ‘B’ word has not stopped the sun from rising in the morning…the dream to purchase a property very much remains in the current financial climate.
We have supported many clients in establishing how to best purchase a property via a variety of approaches including shared ownership and Help to Buy.
One of the reasons the Help to Buy scheme is mentioned in a lot of these enquiries is the sheer number of opportunities to buy via this method, as a result of the number of new build properties being erected. The Help to Buy Equity Scheme aids clients that are looking to purchase a new build property where they are the first persons to reside in this dwelling. This gives the true blank canvas to be able to make your house a home.
How Do Help To Buy Mortgages Work?
HTB should allow you to buy more of each brick of your home per month. Here is how…
Example One
Buying outright: your house purchase price is £300,000. With a deposit of £30,000 and a loan to value of 90%, your monthly payments are £1,044.50. The capital part of your mortgage payment is £523.58, whereas the interest part is £520.92. Your balance after 5-years is £237,062.
Example Two
Help to buy: your house purchase price is £300,000. With a deposit of £15,000 and an equity loan, and a loan to value of 75%, your monthly payments are £833.90. The capital part of your mortgage payment is £459.42, whereas the interest part is £374.50. Your balance after 5-years is £196,289.
…as HTB enables you to have a lower loan to value – and subsequently have a lower interest rate – the capital element of your mortgage payment is greater than the level of interest you are repaying to the lender. 55% of your mortgage payment towards owning more of your home rather than 50% (based on the first years mortgage payments).
If you have a house hold income of circa £60,000 and a deposit of circa £15,000- £30,000 the above scenarios are achievable. Deciding which method of purchase is best is for your consideration and based on the detail:
Will your salary increase at a rate for you to look to repay your equity loan from a potential remortgage?
Do you want to have cash funds available when you move into the property to furnish your new home?
Are your aspirations to build a portfolio before you have repaid your HTB equity loan?
The above examples go onto show is that the level of equity you have created is fairly similar in comparison as with HTB the loan amount decreases by 12.76% and with buying outright a 12.20% decrease. So although you are buying more of each brick for the first five years and managing cash flow once you factor in repaying the equity loan via sale of your home, savings or remortgaging and raising funds your HTB experience has provided value only in getting a foot on the ladder at a reasonable cost per month.
Secure Your Help To Buy Mortgage Today
At Hawke we would take the time through your initial enquiry to break down options in this level of detail to establish which method of purchase is BEST for YOU. Speak to our consultants today to find out more.