How can Mortgage Advisers recommend repayment of Help-to-Buy?
The Help to Buy Scheme is weird because the Government will take a percentage of profits (or loss) depending on how the house value changes.
So the advice to repay is not solely about the interest rates. The interest rates charged by the Help-to-Buy scheme are also fantastic. No charge for the first five years, then 1.75%. (See: How does the Scheme Work?)
If the house price goes up, the Government will take a percentage of the increase. If the house price goes down, the Government will take a hit on the percentage of the decrease.
What does that mean when it comes to mortgage advisers advice to repay help-to-buy?
House Prices Decrease
At the start of the pandemic, we could have predicted house prices could fall (projecting; unemployment, evictions & finance availability). The help-to-buy scheme will take part in that loss beside the client. The best advice would be to keep a help-to-buy loan? So the Government will take a hit alongside the borrower if prices fall.
In hindsight, it would have been bad advice. With the Government jumping in the help people with the various schemes, this did not occur, and house prices increased or maintained value.
House Prices Increase
Our industry is now speculating house price increases. We are helped in part by the ongoing pandemic support, SDLT Holidays and the new Mortgage Guarantee Scheme.
Today, as house prices seem to be on the increase, our advice should be to get clients to repay their Help-to-Buy Loan. So the client gets 100% of the increase in future value rather than just 80%.
Except I’ve been wrong before on the direction of house prices, and as predictions go im as good as the next guy.
Perhaps our advice to refinance help-to-buy should hinge on how the clients perceive house prices will go.
Like we do on Interest Rates in determining if a Fixed Rate Mortgage is best client outcome.
With a pleasant paragraph in our suitability letters, “you told me you thought house prices would increase, remortgaging today will remove Help-to-Buy 20% of any increase in value from the date of completion.”
Is it appropriate to recommend existing Help-to-Buy Clients pay off the Help-to-Buy Loan? On the premise that house prices are on the rise.— Hosker 🏴 🇬🇧 (@Adam_Hosker) March 15, 2021
Otherwise, the Government will take 20% of that increased value.
Or is that speculative & may turn out wrong.