Reply to: Help to Buy

[Power Mortgages Ltd]

Thanks for the update, excellent news that banks are applying some common sense here and long may it continue. I suspect the intention of the Help to Buy, scheme is really only to benefit the construction companies and HTB2 was only ever intended as lip service to the second hand market.

Could you share any experiences that you have with re-mortgaging onto the Help to Buy scheme? One of the obvious benefits of HTB is that it makes it easier for banks to repossess without impacting their balance sheet. With this in mind it would seem a prudent move for banks to encourage those customers in arrears to switch to HTB products, just wondering if you've seen this at all (obviously it's unlikely these customers will come through you, but you may have some inside knowledge as it were)?

Help to Buy is strictly only available for purchases, not remortgages and I cannot see that changing either.

I think you are right though, HTB 1 was to help construction companies and to boost that part of the economy and HTB 2 which was initially intended 'to provide cheap mortgage funding for people with low deposits to help stimulate the second hand market' has turned into a bit of a damp squib only being available to people with A+ credit with a 5% deposit. Before more details of the plan came out and knowing the Government would guarantee 80% - 95% of the property value I assumed that lenders would offer better rates for anyone putting down a deposit up to 20%. In fact it has only led to a new tier of loan to value being available (90% - 95%). As mentioned if you have atleast 10% you're better off not using the HTB 2.

I can see it helping a few people out, such as first time buyers who simply cannot raise a 10% deposit or next time buyers who purchased at the height of the market with a minimal deposit who have very little equity in their current property and would like to move but that aside I cannot see it as being as effective as first thought, probably for the best though regarding house prices and a possible bubble.

[northernladuk]

Thanks for the update, excellent news that banks are applying some common sense here and long may it continue. I suspect the intention of the Help to Buy, scheme is really only to benefit the construction companies and HTB2 was only ever intended as lip service to the second hand market.

Could you share any experiences that you have with re-mortgaging onto the Help to Buy scheme? One of the obvious benefits of HTB is that it makes it easier for banks to repossess without impacting their balance sheet. With this in mind it would seem a prudent move for banks to encourage those customers in arrears to switch to HTB products, just wondering if you've seen this at all (obviously it's unlikely these customers will come through you, but you may have some inside knowledge as it were)?

Looking at the rates these are on I can't see how re-mortgaging is going to help anyone unless you just want to get your hands on as much equity as you can... and if so I would ask why but re reading I don't think that was your point. Either way I would be disappointed if banks see not impacting their balance sheets upon repossession as one of the benefits.

[bingobob]

The other point I have noticed with Halifax having given access to apply for a 95% mortgage as of last Friday is that they are credit scoring the applications very harshly. I am finding it quite common for Halifax to advise they are not happy to lend 95% but will lend at 90% in which case, HTB 2 is not going to help you.

Thanks for the update, excellent news that banks are applying some common sense here and long may it continue. I suspect the intention of the Help to Buy, scheme is really only to benefit the construction companies and HTB2 was only ever intended as lip service to the second hand market.

Could you share any experiences that you have with re-mortgaging onto the Help to Buy scheme? One of the obvious benefits of HTB is that it makes it easier for banks to repossess without impacting their balance sheet. With this in mind it would seem a prudent move for banks to encourage those customers in arrears to switch to HTB products, just wondering if you've seen this at all (obviously it's unlikely these customers will come through you, but you may have some inside knowledge as it were)?

[Power Mortgages Ltd]

Just a quick update on the Help to Buy scheme as I have found that there is a little confusion with how the scheme works from a few clients I have spoke to and have also got alittle more feedback from Halifax.

The first point is that there are two variations of the Help to Buy. The first was launched earlier this year and is exclusively for new build properties. On this version (I'll refer to it as 'HTB 1' - Help to Buy version 1) you only need a 5% deposit although you can put down more if you wish and then the HTB 1 scheme provides you with a 20% equity loan. The lender provides you with a mortgage for the rest which would be a maximum of 75% in the event of you putting down a 5% deposit. The equity loan is interest free and repayment free for the first 5 years but sits as a secured charge against the property so if you wanted to sell the property you would have to repay the loan.

The second version of Help to Buy (HTB 2) which was launched last week is for non-new build properties. Again you only need to put down a 5% deposit but the difference with this scheme is that the lender provides the rest, there is no interest/repayment free loan provided under this scheme. The lender provides 95% and then the lender applies to the Government for a guarantee on the mortgage from 80% up to 95%. This ensures that if you were to default on the loan and the lender has to repossess the property then sell it but they didnt get enough to cover the amount you owed then the lender could claim on this guarantee to ensure they are not out of pocket.

A few clients have been coming to me recently looking to buy an older property with a 5% deposit on the belief that they would get an interest free loan from the government and only need to borrow 80% in the form of a mortgage which is not correct.

Hopefully that clarifies any possible confusion between the two scheme if anyone was interested in how it works?

The other point I have noticed with Halifax having given access to apply for a 95% mortgage as of last Friday is that they are credit scoring the applications very harshly. I am finding it quite common for Halifax to advise they are not happy to lend 95% but will lend at 90% in which case, HTB 2 is not going to help you. HTB 2 is only beneficial if you have only 5% deposit to put down. As soon as you have 10% or more to put down you are going to be better off just going for a standard mortgage due to the rates.

An example is that Halifax HTB 2 rate is 5.19% available for deposits as little as 5% fixed for 2 years with a £999 fee. At the moment Halifax have a 2 year fixed rate at 4.49% with no fee available with a 10% deposit so if you are putting down 10% you'd be better off going down the 'standard' purchase route.

Therefore if your credit score is not squeeky clean (no missed/late payments on any credit agreements or a high level of unsecured debt which can also affect your credit score) then it may be worth looking to see if an agreement in principle is possible before commiting to making an offer for a property if you only have 5% deposit.

[b0redom]

Your sums don't add up I'm afraid. A 25 year 130k repayment mortgage at 4% will cost around £700 per month. You then need to factor in agency costs, service charges (for an apartment), maintenance costs, insurance costs, voids, rising interest rates, tax on rental income etc as well as the opportunity cost of tying so much cash up in what is essentially an illiquid, high maintenance, depreciating asset.

The BTL party is thankfully over, there will no doubt be a few 'greater fools' that enter at this late stage of the bubble, but my advice would be to avoid and find something less morally reprehensible and more economically productive to do with your money.

Many people don't do repayment mortgages on B2L properties. My sums are based on that. If you _are_ doing a repayment mortgage, then you essentially end up paying virtually nothing to end up with a valuable asset at the end of the term.

A depreciating asset? Maybe over the short term, but over 25 years? Really?

[bingobob]

Your sums don't add up I'm afraid. A 25 year 130k repayment mortgage at 4% will cost around £700 per month. You then need to factor in agency costs, service charges (for an apartment), maintenance costs, insurance costs, voids, rising interest rates, tax on rental income etc as well as the opportunity cost of tying so much cash up in what is essentially an illiquid, high maintenance, depreciating asset.

The BTL party is thankfully over, there will no doubt be a few 'greater fools' that enter at this late stage of the bubble, but my advice would be to avoid and find something less morally reprehensible and more economically productive to do with your money.

[b0redom]

I don't imagine any BTL landlord in recent times is able to cover a sizeable repayment mortgage with the rent that they receive from their property. The model you are discussing involves subsidising the rent with your own income, and in which case there are better, less hassle and lower risk investments out there. To make any money at all BTL involves an interest only mortgage, high leverage and most importantly rising housing costs -unfortunately, in the medium to long term I don't think this model will work as ultimately UK housing costs will only go down.

Then you are wrong. In the area I've been looking, 170k(ish) buys you a 1 bedroom starter home. You need to put down 25%, so let's say £44k(ish) after fees etc.

The mortgage comes in around £400/month, and the rent comes in at around £800/month. Even assuming fees of ~ £100 / month, you'd be up around £3600/year on a £44k investment (or around 8%), and that's without any capital growth at all.

Of course you have the risk that it'll be void, it'll get trashed etc etc, but that's what due diligence is for.

[b0redom]

I just don't get the buy to let as an investment.

The returns are crap and that assumes that you have no vacant periods, that the tenant hasn't wrecked the place, and of course there are the costs such as insurance, repairs, council tax if vacant, etc. I will stick to my investments in shares, you can get good returns on property companies, without the hassle of tenants etc.

Two words.

Northern Rock.

Not enough? How about three?

Bradford and Bingley.

[northernladuk]

I don't imagine any BTL landlord in recent times is able to cover a sizeable repayment mortgage with the rent that they receive from their property. The model you are discussing involves subsidising the rent with your own income, and in which case there are better, less hassle and lower risk investments out there. To make any money at all BTL involves an interest only mortgage, high leverage and most importantly rising housing costs -unfortunately, in the medium to long term I don't think this model will work as ultimately UK housing costs will only go down.

Makes me want to cry when you read this type of crap. All houses, all over the country as a nation, over the next two or three decades and that is your level of analysis. Words fail me.

[bingobob]

You take out a mortgage e.g. for 25 years.

You have tenants over 25 years, all that rent money being used to pay the mortgage.

At the end of those 25 years, you have a property with no mortgage.

You can either carrry on renting out the property earning £x/mth, or sell it for a one-off £xxx.

I don't imagine any BTL landlord in recent times is able to cover a sizeable repayment mortgage with the rent that they receive from their property. The model you are discussing involves subsidising the rent with your own income, and in which case there are better, less hassle and lower risk investments out there. To make any money at all BTL involves an interest only mortgage, high leverage and most importantly rising housing costs -unfortunately, in the medium to long term I don't think this model will work as ultimately UK housing costs will only go down.

[kingcook]

I just don't get the buy to let as an investment.

The returns are crap and that assumes that you have no vacant periods, that the tenant hasn't wrecked the place, and of course there are the costs such as insurance, repairs, council tax if vacant, etc. I will stick to my investments in shares, you can get good returns on property companies, without the hassle of tenants etc.

You take out a mortgage e.g. for 25 years.

You have tenants over 25 years, all that rent money being used to pay the mortgage.

At the end of those 25 years, you have a property with no mortgage.

You can either carrry on renting out the property earning £x/mth, or sell it for a one-off £xxx.

[jamesbrown]

I just don't get the buy to let as an investment.

The returns are crap and that assumes that you have no vacant periods, that the tenant hasn't wrecked the place, and of course there are the costs such as insurance, repairs, council tax if vacant, etc. I will stick to my investments in shares, you can get good returns on property companies, without the hassle of tenants etc.

Presumably because you haven't crunched the numbers? Depending on location and market, it's not difficult to achieve 7-8% ROI before costs, without the leverage of a mortgage. With the leverage of a mortgage, the ROI can be very substantially higher (assuming the rental yield exceeds the mortgage interest, which isn't difficult). If you know what you're doing and you know the market well (many people don't), it's a legitimate investment.

[northernladuk]

I just don't get the buy to let as an investment.

The returns are crap and that assumes that you have no vacant periods, that the tenant hasn't wrecked the place, and of course there are the costs such as insurance, repairs, council tax if vacant, etc. I will stick to my investments in shares, you can get good returns on property companies, without the hassle of tenants etc.

Lots of reasons. Your shares can go up and can also bomb. If everything you have is in shares and you need them during a bomb period you are ****ed. Same can be said for BTL's. Property price can go up or down but at least splitting the risk means you may not come out with nothing. A good choice of BTL will either generate good income even though you expect the house not to go up too much i.e. students or you can pick a good house in a good area and watch the value rise above market rates over the period. An average property will be an average return. Just like any investment.

It's about doing it properly and if you do you don't get any problems with anything you have just mentioned.

You could quite easily turn your argument around and I could point out my BTL has been a sound investment for the last 15 years so why should I bother buying shares that can go from £x to squat in a few weeks. Sod that.

Same could be said for any investment if you aren't willing to understand properly and invest wisely.

[Waldorf]

I just don't get the buy to let as an investment.

The returns are crap and that assumes that you have no vacant periods, that the tenant hasn't wrecked the place, and of course there are the costs such as insurance, repairs, council tax if vacant, etc. I will stick to my investments in shares, you can get good returns on property companies, without the hassle of tenants etc.

[northernladuk]

Makes sense. Thanks for the update.