Help to buy equity loan.

[2020hello]

So before lockdown we took the 20% equity loan. If house prices fall how long do you think they will be lowered for I'm thinking this may be a good thing for us as we could pay back less than we borrowed because it goes on 20% on the house price at the point we want to repay.

We obviously dont have the funds to pay back now but I'm wondering if we should budget to try and pay back 50% in a couple of years if the house prices do drop that long?

Any advice appreciated.

TIA

@2020hello

I don't know how Help to Buy works, but that sounds a little strange tbh. I don't see why any lender (including the government, who I believe are behind the equity loan scheme) would not insure against losing out in the event a house price drops. Or maybe I've misunderstood what you are saying?

I just read up a little Help to Buy Equity Loans

I think the amount you borrowed when you took the loan still stands. If anything, if the price of your home drops it will be bad news for you because it will mean you are in negative equity - you owe more money than what your home is actually worth.

Or maybe I've misunderstood? Like I said, I don't actually know how the HTB works fully.

, if your home depreciates in value then the cost of your loan will also decrease, which is a positive. However, decreasing house prices can mean other issues, such as negative equity.

So it cost 300k
You put 30k 10%
Govt put 60 k 20%
Mortgage 210k

Price drops to 250k
You still owe mortgage 210k (well you may have paid some off...depends how many years

Govt is still owed 20% which is 50k
So you sell for 250k
Pay back govt 50k
You left with 200k
Pay back mortgage and that s what is left left....maybe 50k? Maybe a lot less. If you have not paid much back of mortgage it will be a lot tighter

That's what I thought, so maybe we will push the saving now to payback the loan before house prices increase. We could probably save the 50% of the 20% loan borrowed in 5 years.
We dont plan on moving so hopefully the house prices would eventually go back up so that we dont get into negative equity.

Im

Oh wow! @Embracelife and @2020hello I had no idea that's how the HTB worked. That it's 20% of the home's value rather than the fixed amount of equity loan borrowed at the start.

I suspect that would be an incentive for the government to try and make sure that house prices won't drop too much if at all. They couldn't afford to lose that much money on all HTB equity loans, surely?

I suspect that in better financial climates the government would usually stand to profit from HTB equity loans - house prices usually go up. That's why it's 20% of the value of the house rather than the actual equity loan amount borrowed.

Learned something new.

The govt don't care if they lose or not. They could have put all that money into building council houses for low rent. It s a political decision. Home owners are more likely to vote for them ...so worth any loss.