Help to Buy mortgages explained…

Over the last 12 months the property market has sky rocketed in value and volume. With the pandemic in the background this has given rise to all time low interest rates on mortgage lending.

According to the UK House Price Index January 2021 “UK average house prices increased by 7.5% over the year to January 2021” the statistics also show that at the beginning of the pandemic the average housing price was “down from 8.0% in December 2020”.

Arguably the increase is a reflection on the current housing demand, and the stamp duty holiday has played a part in the housing demand also.

Experienced buyers/sellers and those on the property ladder already aside, there have also been a surge of first time buyers also taking advantage of the all-time low interest rates.

For those who are not fully aware of the Help to Buy Scheme, the scheme allows for a contribution by Homes and Communicates of 20% of the agreed sale price of the property which is ideal for first time buyers. The repayment method is by way of interest only.

For the first 5 years following completion of the purchase you will not pay any interest on the loan however after in year six following completion the interest will become payable.

After that you have to make regular interest payments. If the interest rate on the loan for year 6 is 1.75%. You have to pay 20% of 1.75% of the original purchase price in year 6. These payments have to be made monthly on the first day of each month.

The interest rate is reviewed every year in (usually in April), in line with something called the Consumer Price Index (CPI) + 2%. This is a set of statistics compiled by the government showing how prices have gone up or down.

On repayment by way of sale, remortgage or just expiry of the term as the loan is on an interest only basis you will still remain liable for the 20%. That 20% is not the original 20% borrowed but 20% of the value of the property at the time of the sale, remortgage of just expiry of the term.

If you want to pay off some of the mortgages there is a minimum amount to pay off 10% of current market value, so half of what you owe then. When you pay the rest off, the amount you pay is based on the valuation at that time.