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  • FIRST POST
    Cassandra W
    FirstBuy, Newbuy are a disaster waiting to happen
    • #1
    • 26th Feb 12, 2:34 PM
    FirstBuy, Newbuy are a disaster waiting to happen 26th Feb 12 at 2:34 PM
    I have seen a FirstBuy scheme peddling a 140k 2 bed flat saying the prices was 111,800 with Firstbuy.
    That is a lie because the 5 year loan does NOT reduce the price.

    *FirstBuy Price of 111,800 is based on 80% of the purchase price on paying 80% upfront with a 20% equity loan for the remaining amount - interest free for 5 years. Monthly payments of 442 based on a FirstBuy price with a 2 year mortgage of 3.49% over 35 years including a 5% deposit from the buyer"

    35 year mortgage!! At say 6% on a normal mortgage the total interest would be 185k.

    After 2 years the fixed rate expires and the FTBS have no idea what interest rate they have to pay on say a 105k balance (140k - 7k 5% deposit - 28k 20% interest free loan) At a mortgage rate of 6% the mortgage payment would be 609.58

    After the 5 year interest free loan expires the mortgage is say 133k (140k - 7k 5% deposit) At 6% that would be 797 a month. If interest rates were 10% the mortgage would be 1,197 a month!

    Government induced 35 year debt slavery for 2 bed apartment. Is this what they call "growth"?

    What needs to be remembered is that at the moment our interest rates are suppressed because the government is printing money to buy our own debt. They will accept any yield on it. That cannot go on or we would face a currency collapse. The coalition originally planned to reduce our deficit to zero in 5 years but instead like Labour they started printing money. This pushed reducing the deficit to zero to 7 years instead. Each time they print money it pushes a zero deficit further into the future because printing money allows more government spending. All the time the deficit is not zero we will be adding to our debt pile. When these FirstBuy schemes mature we won't be printing money, our debt to GDP will be over 100% (It's 80% now from 42% in 2007) and interest rates could easily be in double figures because they will depend on the yield other investors will buy our debt for, not the B of E.

    FTBs being duped into these schemes are going to be crushed. After 5 years they will get a letter telling them they have another 20% mortgage to pay and the whole mortgage could be at a much higher rate. They may as well put bars on the windows and buy prison clothes. They will be in awful debt and struggling to pay it or have to sell and then councils will incur losses because by then we will have the property crash that our artificially low interest rates have only temporarily delayed.

    These schemes should be avoided like the plague. They will make more money for house builders and banks but "helping" a few FTBs into debt does not solve the problem that house prices are too high. The other issue is that banks will loan money on these schemes hand over first - more reckless lending. Banks have little downside. Banks get their bonuses now on this lending but only have any loss if the house prices drops more than 25% in 5 years. They don't care about 5 years! It's councils and the government that will be footing the losses. It's a typical short term measure by a government - push the problem into the next parliament.
    Last edited by Cassandra W; 26-02-2012 at 2:37 PM.
Page 1
  • spunko2010
    • #2
    • 26th Feb 12, 2:51 PM
    • #2
    • 26th Feb 12, 2:51 PM
    True, but how else do you expect the desperate to prop up the bottom end of the property ponzi scam? The government is doing all they can to bring FTBs back so they don't p**s off the powerful housebuilding lobby. They don't give a toss about your negative equity any more than they care about your dwindling savings.
    Last edited by spunko2010; 26-02-2012 at 7:27 PM.
    "The only man who makes money from a gold rush is the one selling the shovels..."
  • poppysarah
    • #3
    • 26th Feb 12, 3:53 PM
    • #3
    • 26th Feb 12, 3:53 PM
    Anything that has to fiddle % to encourage you to buy it stinks of scam to me.
  • Cassandra W
    • #4
    • 26th Feb 12, 4:30 PM
    • #4
    • 26th Feb 12, 4:30 PM
    Think about it.

    A house is usually the most expensive purchase anyone makes. These schemes are telling people they can forget about 20% of the price! That 20% could then multiply many times over depending what interest rate they have to pay.

    Why don't banks do full term fixed rate mortgages? It's because they want to squeeze people as much as they can. These schemes being brought in while interest rates are at a 300 year low, will help them to do it.
  • kk20
    • #5
    • 29th Feb 12, 2:10 PM
    • #5
    • 29th Feb 12, 2:10 PM
    I'm on a 15 year fixed mortgage at 4.99% that is flexible with unlimited overpayments (*and* I can withdraw the overpayments in bundle of 500). Ive overpaid enough to be mortgage free when the fixed term runs out.

    That being said it was northern rock. I wonder what happened to them.
  • TeamLowe
    • #6
    • 29th Feb 12, 4:37 PM
    • #6
    • 29th Feb 12, 4:37 PM
    as i sat politely and let a nice young man do the figures for me, from what i remember it works out thusly:
    5 years interest free
    6th year is suprisingly high, close to 10% or something
    subsequent years up to year 25, 3% plus RPI
    after 25 years you have to pay it back

    it's also 20% of the house value, not a fixed amount. it's a 'second charge' on your property and can only be paid off in 10% increments if you want to pay it back before the 25 years is up. or upon sale.

    am i right in thinking that you could say, as the mortgage is the first charge on the property, take out a bigger mortgage and end up owing more than the house is worth? say by taking it up to a 95% mortgage? the bank might not care how much the second charge is for as they'll always get their money first
  • Cassandra W
    • #7
    • 3rd Mar 12, 10:18 AM
    • #7
    • 3rd Mar 12, 10:18 AM
    There are a lot of people wailing today because mortgage interest rates are going up 0.25% or 0.5%.

    What are the people doing these 20% gifted deposit schemes going to do in 2017 when the 20% balance becomes due? It's going to hit them a lot harder than these little mortgage rate rises. Though each mortgage rate rise between now and 2017 adds to their problem.

    It will be carnage.

    The best they can hope for is a 4% or 5% pay rise each year between now and then, so they have a chance of paying the extra. What they are doing is signing away their pay rises to bankers for the next 5 years! But what if they don't get a pay rise?
  • mapan
    • #8
    • 2nd Apr 12, 11:23 AM
    • #8
    • 2nd Apr 12, 11:23 AM
    I think some of you guys have misunderstood the scheme.

    The rate you pay on the equity loan is 1.75% after 5 years interest free, certainly not 10%. Unless you have an exceptional mortgage, that's pretty hard to beat! You owe the full balance after 25 years or when you sell the house.

    "For the first 5 years, the FirstBuy equity loan will be interest free. After five years with a charge payable.The fee will be need to be paid to the National HomeBuy Agent and the amount is 1.75% per annum on the outstanding loan. This fee will rise on an annual basis by the Retail Price Index (RPI) plus 1%."

    Additionally, the scheme removes some of the the risk from the buyer as if house prices come crashing down, the equity loan is only re-payed as a percentage of current market value. Of course if the house value increases you also have more to pay back or lose a proportion of the profit when you sell.

    There are going to be pros and cons to any scheme and it will not be right for everyone. However, if you know understand what you are entering into (as everyone should for such a huge financial commitment) then I feel it can be a very helpful scheme for certain people.

    For example, my wife and I are in our first year of work post university. Through savings and parents help we have enough for a 10% deposit on a 230,000 new home. At best, we were able to get a 5.5% mortgage. With the FirstBuy scheme we can put down a deposit of 5%, avoiding the need to ask parents for help, and have a 5 year fix at 3.79% (and are paying no interest on the 20% equity loan). Over the next 5 years we will be setting aside money to pay of the equity loan in full; essentially saving for our deposit whilst living in our house.

    It's easy to be cynical about government schemes but for some people they really can work out well. For us it means buying a house at age 25 instead of 30 and having lower monthly outgoings during those 5 years than we have had renting a similar property for the last few years.
  • spunko2010
    • #9
    • 2nd Apr 12, 11:55 AM
    • #9
    • 2nd Apr 12, 11:55 AM
    It's easy to be cynical about government schemes
    Originally posted by mapan
    Not as easy as it is, to be cynical about Mr 1st Post Promotion. A shrill for the housbuilding lobby posting here? Surely not...
    "The only man who makes money from a gold rush is the one selling the shovels..."
  • brit1234
    As I said before shared equity (Firstbuy, homebuy) are scams designed to rip off buyers and prop up falling prices for builders who want to overvalue to hide their company being technically bankrupt.

    We have the shared equity time bomb hitting the UK in 2013 when these loans start to have to be repaid. I'm sure we will hear lots about these sub prime loans then. In the mean time I advise everyone to avoid this shared equity scam for your own economic safety.



    Shared Equity time bomb: Detonation 2013


    Scams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.

    Save our Savers
  • Idiophreak
    What are the people doing these 20% gifted deposit schemes going to do in 2017 when the 20% balance becomes due? It's going to hit them a lot harder than these little mortgage rate rises. Though each mortgage rate rise between now and 2017 adds to their problem.
    Originally posted by Cassandra W
    "gifted deposit schemes" eh?

    It's a LOAN. See in your second paragraph where it says "80% upfront with a 20% equity LOAN for the remaining amount"...that should be a clue.

    In 5 years time, people aren't going to wake up and go "holy moly! That massive **** off loan I took out five years ago...that's due today! Oh lordy, I completely forgot about that massive **** off loan! Where am I going to find the money to pay for that massive **** off loan!?"

    You have to repay a loan...if people just repay the loan in 5 years time...what happens? They wake up and...No timebomb...no big surprises...just a bunch of equity in their home and a decent chance of moving up the ladder.

    Of course, someone might not have paid off all of the loan in the first 5 years...life happens and all...In which case? They'll be charged a bit of interest. Scandalous.

    People on these board repeat the mantra over and over again..."if you just save hard, you'll be able to save a deposit in 2 years...in 3 years...in 5 years"...there's no reason people shouldn't be able to repay the loan in 5 years. or 6 years. or 10 years. When they do, they'll have put down a 20% deposit and paid X years of mortgage repayments.

    In the meantime, they'll probably find it easier to save the deposit, as mortgage repayments are often cheaper than rental. For example, interest rates would need to rise by 5% before it became as cheap for me to rent as buy on shared equity.

    If people make no attempt to try and repay the loan they took out and view the end date as (as brit puts it) "when these loans start to have to be repaid", they're going to pay more interest...

    Believe it or not, I'm actually no fan of the FirstBuy scheme, but I really do think your arguments are some of the most poorly constructed I've seen in a very long time.
  • Running Horse
    Slightly different, but we were offered a 75% shared equity deal for ten years in an area with lots of newbuilds. Several years later we would have been no nearer finding that 40,000, and values have fallen by almost that amount anyway. I really hope we are not setting off a ticking time-bomb with this latest wheeze.
    I want to die with a hand on my heart.
  • Firthy777
    From my perspective the FirstBuy scheme (although now discontinued) was a very good one for myself and my partner. We had both just graduated last year and both had good jobs in the pipeline. Instead of paying 700-900/month, paying somebody else's mortgage in rent for the next 3/4/5/6 years, we managed to get a 4.20% 5-year fixed mortgage and get on the FirstBuy scheme. The interest free 5-years borrowing money from the House builder and the government gives us 5-years to effectively 'save-up' for our deposit, which we intend to pay off after the interest free 'term' is up. This scheme has allowed us to at least get on the ladder and save up and pay towards our future instead of somebody else's. Without a doubt if you spend a good few more years saving up for your deposit you will be better off in terms of having to borrow less, get better rates and such like but you will still be paying huge rents all the way up to that time and life's events will take place and the money may be required for other things. Life is one big journey, you have to take these opportunities when they arise. Albeit I wouldn't go near a shared equity scheme. :O
  • kingstreet
    From my perspective the FirstBuy scheme (although now discontinued) was a very good one for myself and my partner... Albeit I wouldn't go near a shared equity scheme. :O
    Originally posted by Firthy777
    FirstBuy was shared equity, as is its replacement, Help To Buy - Equity Loan. You don't repay the original amount, you repay the % of the property value you borrowed, when you sell, at the end of the term, or voluntarily. That's the "equity" connection.

    Perhaps you wouldn't go near shared ownership?
    I am a mortgage broker. You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice. Please do not send PMs asking for one-on-one-advice, or representation
  • Turnbull2000
    Maybe so, but you've got no choice if you want you own property, have you? This scheme will likely become permanent, as it's removal will could cause a drop in prices in five years time.

    That house prices will rise substantially as a result of all this government support is something thousands of new property buyers will simply have to put up with.
    Hi, weve had to remove your signature. If youre not sure why please read the forum rules or email the forum team if youre still unsure - MSE ForumTeam
  • Running Horse
    This latest in a long line of similar scams will be about as permanent as MIRAS. Why can the government not resist meddling in the housing market? The only intervention should be to stop builders sitting on huge land banks. There is one development here that has had permission for years, but the greedy developers are waiting for prices to rise before building.
    I want to die with a hand on my heart.
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