Help to Buy: How do the charges work now & how did a waistcoat save my life? by Steven Poole

I don’t know what it was that first made me don the waistcoat. It was likely something to do with turning 30 and my metabolism not keeping up with the Dr Pepper and Yorkie bar addiction. Either way, I was having to loosen that little (future life-saving) strap on the back a little more every week, and looking like Ronnie O’Sullivan if you ordered him from ‘Wish’ was my MO. At the time, I didn’t know that this would later leave a lasting impression in my life.

It also was around this time that the Help to Buy equity loan was introduced. The concept sounded great, but it was a little hard for advisers to get the full information on what it was and how it worked. Essentially, buyers would need to have their own 5% deposit, then they’d potentially get a 20% additional deposit from the government in the form of an equity loan that would be interest-free for the first 5 years. Thus creating a 25% deposit, giving access to far better rates and affordability than with just 5%. It was originally only for First Time Buyers, but was then expanded to include homemovers, too.

The thing that felt a little unclear was what happened in year 6 with the loan… Interest would be charged monthly at 1.75% and then raised by 1% or 2% + RPI (inflation) every year for the next 20 years (as they were taken over a 25 year period). 5 years sounded such a long way off at the time, and most clients were happy with the concept of either paying off the loan through capital raising (which would be based on the present day value) or selling and paying off the 20% which would then be 20% of the sale price. It’s a lot to grapple with, I know, but…

Um… What’s that? What do you mean, “Skip to the part where a waistcoat saved your life”? Is thinking about Help to Buy breaking your brain already? 

Well, okay then!

So, the valuer for the estate agent I was working for at the time could see that my brain was also fried when trying to completely understand this new scheme. I tried explaining it to him but I think we ended up solving the equation for time travel instead. He’d had a call that was one of the rarest types of valuation. A son had inherited his father’s property and left it untouched and unlived in for 30 years (even though it was next door) so the valuer invited me to come with him to see it.

We arrived there, and it was a double bay-fronted Victorian terrace with these huge cracks around the windows and up towards the roof. The door was rotten. Upon opening it, it was like the scene from Harry Potter with all the Hogwarts invitations coming in from all angles - literally a sea of post. Other than that though, the property was essentially completely frozen in time. The air was thick with dust, there were newspapers from the ‘80s and even tins of food in the cupboards.

We finished measuring up the downstairs area, then moved on upstairs. I was using an old sonic measurer and relaying the readings to my colleague who was drawing the floor plan. We forced open the door to the master bedroom and entered. There was clearly some sort of leak in the roof and there was a lot of sunlight streaming in from the cracks in the building.

Without thinking, I stepped into the bay to measure the width. That’s when the ground beneath me started to move. The whole bay shifted forward, and there was nothing I could do to stop myself going with it…

That’s when the waistcoat saved my life. 

In reality, it was the Spiderman-like reflexes of my colleague who reached out and managed to grab that strap on the back of my waistcoat and pulled me to safety, away from what was clearly going to be the end of me. As the rubble settled, he even quipped cheekily, “So, did you get that measurement, eh?” If not for my waistcoat and his superheroics, I probably wouldn’t be here today to tell you more (yes!) about Help to Buy and its legacy.

Despite the scheme no longer being available for purchases, there are a few hundred thousand clients out there who still have the Equity Loan and are making payments. Raising money with the current mortgage rates may not be appealing, so I just wanted to explain how these work beyond year 6 (which was at 1.75%, remember).

I saw an example that shows the workings very clearly:

If inflation was 8.7% in year 7 then the increase to the 1.75% would be either 9.7% or 10.7%, depending on whether your scheme was 1% + RPI or 2% + RPI).

Increase of 9.7% = new rate of 1.92%

Increase of 10.7% = new rate of 1.95%

This new % rate of the equity loan is then divided by 12 to get the monthly interest payment that sits alongside the mortgage, e.g. £100,000 loan x 1.92% / 12 = £160 per month. Easy!

Much like wearing a waistcoat, it’s hard to know whether Help to Buy was ever the best choice for people, but if it either a) saves your life or b) allows you to buy your dream home, it can’t be the worst thing in the world!

---

Thank you for reading. I hope I’ve helped you to understand Help to Buy’s legacy a little better.

Also, if you’re not done reading just yet, have a look at what Dashly does to help mortgage advisers in their day-to-day: https://dashly.com/partners/mortgage-advisers

Steven Poole

Dashly Operations Manager - Intermediaries

Book a call: https://meetings-eu1.hubspot.com/meetings/steven-poole