PLEASE READ BEFORE POSTING

Hello Forumites! In order to help keep the Forum a useful, safe and friendly place for our users, discussions around non-MoneySaving matters are not permitted per the Forum rules. While we understand that mentioning house prices may sometimes be relevant to a user's specific MoneySaving situation, we ask that you please avoid veering into broad, general debates about the market, the economy and politics, as these can unfortunately lead to abusive or hateful behaviour. Threads that are found to have derailed into wider discussions may be removed. Users who repeatedly disregard this may have their Forum account banned. Please also avoid posting personally identifiable information, including links to your own online property listing which may reveal your address. Thank you for your understanding.

FirstBuy, Newbuy are a disaster waiting to happen

Cassandra_W
Cassandra_W Posts: 22 Forumite
edited 26 February 2012 at 2:37PM in House buying, renting & selling
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.
«1

Comments

  • jimpix12
    jimpix12 Posts: 1,095
    First Anniversary Combo Breaker First Post
    Forumite
    edited 26 February 2012 at 7:27PM
    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.
    "The only man who makes money from a gold rush is the one selling the shovels..."
  • poppysarah
    poppysarah Posts: 11,522 Forumite
    Anything that has to fiddle % to encourage you to buy it stinks of scam to me.
  • 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
    kk20 Posts: 142
    First Anniversary First Post Combo Breaker
    Forumite
    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
    TeamLowe Posts: 2,406 Forumite
    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
    Little Lowe born January 2014 at 36+6

    Completed on house September 2013

    Got Married April 2011
  • 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
    mapan Posts: 1 Newbie
    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.
  • jimpix12
    jimpix12 Posts: 1,095
    First Anniversary Combo Breaker First Post
    Forumite
    mapan wrote: »
    It's easy to be cynical about government schemes

    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
    brit1234 Posts: 5,385 Forumite
    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.
    images?q=tbn:ANd9GcSaH9f6Qo9Suz3ohIh0MA4H2EawBrXbbZv6LQvazddHmGyezS3X

    Shared Equity time bomb: Detonation 2013

    :eek:
    :exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.

    Save our Savers
  • Idiophreak
    Idiophreak Posts: 12,024
    Combo Breaker First Post
    Forumite
    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.

    "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.
This discussion has been closed.
Meet your Ambassadors

Categories

  • All Categories
  • 342.5K Banking & Borrowing
  • 249.9K Reduce Debt & Boost Income
  • 449.4K Spending & Discounts
  • 234.6K Work, Benefits & Business
  • 607.1K Mortgages, Homes & Bills
  • 172.8K Life & Family
  • 247.4K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.8K Discuss & Feedback
  • 15.1K Coronavirus Support Boards