In the last few years, many first-time buyers have taken advantage of the government’s ‘Help to Buy’ scheme as a way of helping them to get a foot on the housing ladder. The equity loan scheme enables them to obtain up to a 20% equity loan towards the cost of a new build home, leaving just 5% deposit to find themselves.
United Trust Bank (UTB) recently completed a £58,000 second charge mortgage for a couple using the funds to pay off the equity loan they took out 5 years previously. The good news was that the value of their home had increased significantly over the last five years. The bad news was that the amount of the equity loan to be repaid had increased proportionately too.
Equity loan borrowers don’t pay any interest on the debt for the first five years but in the sixth year they pay 1.75% interest and for each subsequent year it’s 1.75% plus the rate of inflation based on the RPI, plus another 1%. As time goes by the loan can become quite expensive to repay. The couple discussed their options with their credit intermediary, who is an approved introducer for UTB, and together they completed a fact find. They established that they had adequate income to support a second charge loan to repay the equity loan before they had to start making any interest payments on the equity loan. They would also benefit from 100% of any further increases in the value of their home.
We received the application together with proof of income by way of the last two years SA302s for applicant one, who as a sole trader for the last 10 years could evidence to us his income was both at a consistent level and sustainable. With payslips for applicant two and the valuation report, we were able to issue the Binding Offer.
On receipt of the original signed mortgage deed, we were able to send the funds to the solicitors dealing with the repayment of the equity loan on the applicants’ behalf.
At UTB we strive to maintain a flexible underwriting criteria which allows us to lend for a wide range of purposes and we work closely with our brokers to meet our mutual customers’ needs.
Second charge loan: £58,000
Term: 20 years