I have a mortgage help to buy: a £50,000 equity loan under the scheme together with a £150,000 mortgage on property in England. Can I pay off £130,000 of the mortgage and then remortgage the remaining balance of just £20,000, but leave my £50,000 Help to Buy loan outstanding as it is interest free for another four years? Is this sensible or not?
David Hollingworth, broker director L&C Mortgages, he says help to buy Equity loan, available in England, Scotland and Wales in various forms, has helped many people climb the ladder or make their next move to a new, possibly larger property over the years. As you live in England, you will benefit from a home equity purchase assistance loan of up to 20% of the property value (or 40% in London) on new build properties, most recently for first time buyers only. The purchase price is then made up by a minimum deposit of 5 percent and a mortgage.
As you say, the capital loan does not charge any interest for the first five years. After that, a rate of 1.75 percent is charged in year six, which then increases each year by the consumer price index plus 2 percent.
The Help to Buy home equity loan can be repaid at any time, in part or in full, although the minimum requirement is 10 percent of the property value, usually half of the home equity loan, rather than small regular amounts .
That’s due in large part to the fact that the home equity loan is repayable at the same percentage of the property’s current value that was originally taken. Consequently, if the property has increased in value, the outstanding loan capital will also have increased. Thus, if a £250,000 property with a 20 per cent equity loan has increased in value to £275,000, the repayable equity loan will have increased to £55,000.
If you decide to pay off some or all of the home equity loan, an appraisal will be required to meet the purchase assistance broker requirements, which will incur a cost plus any administrative fees. Full mortgage payment would also require payment of the principal loan.
Therefore, even though it may appear that the home equity loan will be interest-free for the next four years, there will also be a possible further enhancement to the outstanding loan as a result of any changes in the value of the property.
We just don’t know what will happen to home prices over time, so you can’t be sure that paying off the mortgage and leaving the home equity loan intact will ultimately be the cheapest option, despite from its initial state free of interest. However, it is also worth noting that if property values fall, the government shares the downside.
Before making any mortgage overpayments, it would be wise to check for early repayment charges (ERC). Having only one year on the loan would generally suggest that you are still in a current agreement. Some offers may be CKD-free, but it’s worth being safe as they can run into the thousands of pounds. That will also help you understand if you need to remortgage or if the current rate is still appropriate.
When changing lenders and retaining some or all of the home loan, your options may be limited, so it pays to shop around. Lenders may also have minimum loan amounts for remortgage agreements (often £25,000) and switching to a new lender and keeping the home loan will also incur an administrative fee for the Help to Buy agent.
In general, only hindsight will tell if the right decision was to prioritize the mortgage overpayment, the home equity loan payment, or a combination of the two. Although the home equity loan is initially interest-free, it is a loan and will ultimately depend on the market value or sale price of the home at that time.
How long does it take to establish a durable power of attorney?
I have read about the backlog of Durable Power of Attorney (LPA) applications. I urgently need to become one for my elderly mother who can no longer handle her financial affairs. What is the process of registering an LPA and how long does it usually take?
Ann Stanyer, partner and senior law specialist at Wedlake Bell, says this is becoming a widespread problem. Durable powers of attorney are commonly executed when people are older, retired, or have health problems, but they are an essential document for everyone. Depending on where you live in the UK, the version you make will be slightly different, but it essentially provides the same powers.
All LPAs must be registered before they can be used. If your mother has signed your LPA, she has witnessed her signing, and a certificate provider has certified her knowledge and approval of the LPA, then the LPA must be sent to the Office of the Public Guardian (OPG) for record. This is where the problems can start.
On June 21, the then Minister of Justice provided a written parliamentary response on the time it takes to register LPAs. The OPG has a goal of registration within 40 days. At the moment the term is double that of 82 days. Additionally, nearly all LPAs registered this year took more than 12 weeks to register.
The OPG has several reasons for this increase. He cites not only the Covid buildup but also the required legal waiting period. This waiting period allows the OPG to carry out verifications upon receipt of the LPA and only then begins the four-week period during which registration objections can be filed.
I’m not sure these reasons are the whole problem: it’s also a personnel issue. The OPG lost a lot of staff during the pandemic; a mix of foreign staff returning home due to Brexit or Covid and staff who just don’t want to go back to work after lockdown.
Separately, the statistics show that LPA registrations are well below pre-pandemic levels, down 18.8 percent. It is surprising, therefore, that the waiting time for registration has doubled despite the fact that registrations are much lower. Clearly something is not right.
This will not reassure your mother. Unfortunately, there is no expedited registration service if decisions are urgent. Until the LPA is registered, you have no authority under the LPA to make decisions as your mother’s attorney.
As long as your mother has the ability to make decisions for herself, then she should continue to do so. However, there is a short-term measure that could tie him up while the search is done: her mother could sign a general power of attorney in her favor. This has no registration requirement and is effective immediately. However, the power will only last as long as your mother retains her ability. This is the only solution under the circumstances, but hopefully it will help.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect results arising from reliance on the answers, including any losses, and exclude all liability.
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