Thoughts on a house-buying finance scheme

SlyReaper

SlyReaper

SlyReaper

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I'm looking to buy my first property soon. I've viewed a number of flats and houses, and the latest I've seen is a new development in a pretty nice area.

For every house except this latest one, I would be doing the normal thing of putting down an X% deposit and borrowing the rest on a mortgage. But the development company selling these new properties has a scheme whereby you only need to put down a 5% deposit, and they will pay for 15% of the property's value, and you pay back this 15% over the course of 10 years. The first 5 years are interest free.

Here's the thing. I could buy the property in question without this finance scheme. But if I did go for this scheme, I could put down a much smaller deposit. The rest of the deposit money I have could then sit in a savings account for 5 years, accruing interest. And after 5 years, I could pay what I owe and keep the interest. This interest is a hefty sum of money.

Now this seems suspiciously like a free meal, and I know those don't exist. Does anyone have some thoughts on what the catch might be? What questions I should ask?
 
Personally I would buy it with as big a deposit as possible, what % would the last 5 years be that you pay interest on?

I'm looking at getting my first property soon and I have seen 'deals' like this.
 
One of the house developers that we do drawings for do this scheme as well. The advantage of this for the developer is it helps the buyers get a mortgage therefore they can sell their houses and although they have an outlay its only a fraction of the money they get for the whole sale. They just have to wait the 10 years to get the remainder. There's probably some sort of penalty clause in there as well, if after the 10 years you cant make that payment / default during your mortgage payments that works to their advantage as well.
 
Breeze said:
The catch is probably the interest they charge you after the first 5 years.
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Not usually the interest is usually far lower than a mortgage. Usually no real catch, it's a goverment incentive to help FTB, although I find all new house prices to be crazy expensive.
 
Breeze said:
The catch is probably the interest they charge you after the first 5 years.
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Years 6 to 10 would be charged at 3% per annum. Which is still lower than the mortgage. But it doesn't matter if I pay it off after 5 years.
 
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Yes, this scheme has been taken up by only a few banks. But one of those banks in the scheme has some of the best rates anyway.
 
Can you take the 15% but put in a big deposit anyway? say if you had 20% could you effectively have 35%?

Could you agree a higher discount on purchase price if you don't need their 15%?
 
I was looking at this a couple of years back, homebuy I think it was called?
At the time I think you had to take out your mortgage with the Co-op I think. Was also restricted to key workers or people with a combined income under £60k.

Anyway if it's the same as what I was looking at I don't think there is any 'catch' providing you meet the criteria and pay it all off after 5 years (and don't sell the property during that time, I think if you do you have to pay for valuations or something).
 
daver said:
Can you take the 15% but put in a big deposit anyway? say if you had 20% could you effectively have 35%?

Could you agree a higher discount on purchase price if you don't need their 15%?
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I was thinking this too. Don't forget you still need to furnish a new build so either stick the 15% on top of the scheme or use it to deck out your new pad
 
gv_of_e said:
Is there any early repayment clauses? ie, they charge you more if you pay the remainder off early?
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From speaking to the lady showing me around, it doesn't sound like it. But it's something I'll ask the financial advisor tomorrow.

daver said:
Can you take the 15% but put in a big deposit anyway? say if you had 20% could you effectively have 35%?
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Yes, it sounds like it. But then that 15% portion would have to be paid off within 10 years as opposed to the 25 years on the bigger portion. So the monthly repayments might be a bit too painful for me to handle.

daver said:
Could you agree a higher discount on purchase price if you don't need their 15%?
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Yes. They said that if I went for this scheme, they would be less likely to entertain offers much below the asking price. It all depends on what can be worked out, but I get the feeling I'd be able to get a better price if I go for a bog-standard deposit+mortgage.

So I suppose that's the catch there. I can either lower the buying price by a bit, or use the scheme and earn a bit in interest. My guess it'll work out better to go in with an offer a few thousand below the asking price, and sort out my own finances. On the other hand, it would allow me to make an offer on a slightly more expensive flat. Decisions decisions...
 
SlyReaper said:
I'll ask the financial advisor tomorrow.
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/thread

Full marks for having the common sense to be cautious. The questions that leap to my mind would be...

- Interest after 5 years (you've answered)
- Any punitive measures if you sell before you've paid it all back?
- Will this have to be declared at all as a loan or similar on other financial paperwork? You don't want to voluntarily hang a financial plaguemark around your neck
- Early repayment charges (is the 10 years a max, or a fixed period?)
- Can you afford the repayments, without just sticking this in savings and paying back out of the same pot month by month?
- Can you do anything useful with the money? If you can afford the monthly repayments and this will let you furnish the place, good result. If you struggle to match the interest, and need to pull straight out of the pot to pay off the 15%, is there any advantage?
 
If you borrow the 15% against the house from the developer and only pay 5% deposit, will it be a fixed sum to pay back at the end of the 5 years interest free part or is it 15% of current value?

I am on a shared ownership scheme and own 30% of my property via deposit and mortgage. The other 70% I rent but can buy at any time in 10% chunks. These 10% chunks are based on the current value which I believe is more than I paid for it 2 years ago.

If you get a 15% fixed repayment with 0% interest for 5 years then you would be mad to not take it assuming your mortgage rate would not be adversely affected. Finding the lowest rate mortgage on the terms you want (overpayment, early payment penalities etc) is the highest priority imo.
 
ShadowMan said:
If you borrow the 15% against the house from the developer and only pay 5% deposit, will it be a fixed sum to pay back at the end of the 5 years interest free part or is it 15% of current value?
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Current value.

We have used this scheme for our place. 5% deposit from us, 15% from developer, 15% from government, remaining 65% as a mortgage.

It's essentially a loan for a third of the property that is interest free for 5 years, after that you pay interest on the original amount they loaned.

If you staircase, and want to buy out some of that 30%, it is done at the current value of the property rather than the original.

Alternatively, sell up before the 5 years ends, and 30% of the sale price goes back to the lenders, which is what we plan to do.
 
krooton said:
Current value.

We have used this scheme for our place. 5% deposit from us, 15% from developer, 15% from government, remaining 65% as a mortgage.

It's essentially a loan for a third of the property that is interest free for 5 years, after that you pay interest on the original amount they loaned.

If you staircase, and want to buy out some of that 30%, it is done at the current value of the property rather than the original.

Alternatively, sell up before the 5 years ends, and 30% of the sale price goes back to the lenders, which is what we plan to do.
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this is something me and my partner have looking at shared ownership scheme, seen a 2 bed flat in our area for 82,000 at 50% equity making the flat total 164,000. One thing to be aware of though is the service charge *rent* for the housing association, they would charge us around £180 per month. We had a AIP on a repayment over 2 years fixed would be £504.00 per month + service charge £180 = £684.00.

Taking into account, Contents cover, money for repairs and utility bills you would need at least £1,000 to make ends meet.

having a mortgage is a serious thing and would advise you to work out your finances before applying for the mortgage, also take into account that you would need at least £1,000 upfront for the solicitor costs, survancing, brokers fees. + your 5-10% deposit.
 
dave1983 said:
this is something me and my partner have looking at shared ownership scheme, seen a 2 bed flat in our area for 82,000 at 50% equity making the flat total 164,000. One thing to be aware of though is the service charge *rent* for the housing association, they would charge us around £180 per month. We had a AIP on a repayment over 2 years fixed would be £504.00 per month + service charge £180 = £684.00.
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Yeah, our mortgage is £580, service charge £90, and ground rent £10 a month.
 
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