Own Home Scheme Pros and Cons

nig0609

tek-monkey wrote: »

My mortgage got referred as I've changed jobs recently, bah! Same line of work for the last 3 years, but swapped jobs in April. Said it shouldn't be a problem, but we'll see. bummer, good luck!

Anyway, after a conversation last night I realised I'm not as clued up on this scheme as I thought. There are things I thought I knew, but have no realised may just be assumptions. If anyone can comment I'd appreciate it.

Assumptions:
1) After 5 years, you pay interest on the value borrowed. Not the current value. CORRECT
2) When buying back equity, you have to get it valued and pay appropriately. CORRECT

Questions:
1) If you buy back equity, is the new house value used to calculate interest payments? YES, e.g. house purchased 100k, borrow 40k. 5 years time house valued at 150k, pay off half loan, you still owe 30k and interest will be charged on the new value.
2) If your house value drops, do you pay back less or are you stuck with the amount borrowed as a minimum base?You pay back less if you house value drops, UNLESS you pay off the loan in the first 3 years, then it is the higher of the new valuation and original loan.

in red above, as i understand the contract i have received.

the only thing i am not sure about it is remortgaging. If you remortgage (with co-op) after the fixed period, will the Ownhome loan get revalued at the same time that the co-op do the mortgage valuation?

tek-monkey

Thanks a lot for that, most appreciated. Just got a call from the surveyor, confirmed with the co-op and I'm OK to progress, woohoo!

Now from the answer you've given me to question 1, it would be very unwise to buy back equity unless the house price is stable (or drops). Otherwise the interest on the remaining share could go up despite you reducing the share itself! Of course, if the market goes REALLY bad in the next 3-5 years I could buy some equity and actually get the interest on the rest reduced a lot too. Interesting.

I know you can only buy 5% back at a time, how often can you do this? Is there a set minimum period between payments or could I just pay off 5% a week? (If I ever had that sort of money spare!)

shanqs1

A quick update:

Just called P4P as I have my offer accepted on a house, and want to make sure funding is available. Have been told that funding in London is now 14% of the total regional funding, while from April to now, 60% of the funding in London has been consumed.

I then followed up with the question would funding be still available in a week, the answer is "pretty much yes, but still with a possibility of running out", which really scared me, as Co-op told me that my mortgage request has been passed to the underwriter and will need one week to proceed, therefore my funding won't be secured untill the mortgage has been fully approved.

So, just let those who haven't yet made your mind to know that time is tickling, hurry up in looking for your dream home and don't haggle around too much.

good luck to all of us!

nig0609

tek-monkey wrote: »

Now from the answer you've given me to question 1, it would be very unwise to buy back equity unless the house price is stable (or drops). Otherwise the interest on the remaining share could go up despite you reducing the share itself! Of course, if the market goes REALLY bad in the next 3-5 years I could buy some equity and actually get the interest on the rest reduced a lot too. Interesting.

I know you can only buy 5% back at a time, how often can you do this? Is there a set minimum period between payments or could I just pay off 5% a week? (If I ever had that sort of money spare!)

I agree, I do not plan to buy back the equity unless prices drop after over the next 5 years, but instead i will use the money to overpaying the mortgage until it is nearly 0. Then remortgage to pay back the equity.
Another way to look at it, is you repay part of it after X years, paying more interest, but then you final repayment will be less - ASSUMING prices continue to rise.

You are no restricted to only 5% repayments, but you have to buy in 5% multiples. You can repay down to as low as 5% owing to P4P, or 0% paying all of it back.

You have to pay for the valuation survey each time you want to repay, you then have 3 months to pay back what you want to (in 5% multiples). This gives you time to arrange re-mort etc.

tek-monkey

Thats very useful, thanks mate. I'm thinking the same, pay off as much capital as possible as early as possible. I'm writing off the first 6 months, as I know I'll have lots to spend out on, but from then on I'm hoping to put at least £300pcm into the overpayment fund.

Actually, thats another question! The co-op have an overpayment fund, but that is not actually over-paying is it? The said it was like a bank account, where I can put money in as needed and its taken off the capital to calculate interest. They also said funds in this could be used to take payment holidays etc. Would I be right in thinking this could be used as my savings account effectively, as it seems that way.

stampychan

Hi all. I second what everyone else has said about this thread being super-useful for OwnHomers! Thanks everyone!

I have a quick question: at what point is my OwnHome funding secure?

I have had the letter, the phone interview, been accepted by OwnHome and had the letter with property selection criteria, offer accepted on a flat, mortgage agreement is currently being processed and the guy from Co-op says they will be able to instruct surveyor tomorrow or Monday.

He says that once they've done this they will underwrite the mortgage then inform OwnHome. I am assuming that after this has happened I have a roughly 4 week wait before I get the letter from OwnHome to confirm. Could I still miss out on the money now?

I've read some replies that imply this might still be the case, but I'm also thinking that if other people are still being accepted on initial phone interview, I probably won't miss my chance...? What do you think? When can I breathe a sigh of relief knowing that the OwnHome money is there?

Thanks in advance for any help you can give me!

ladybird3

nig0609 wrote: »

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in red above, as i understand the contract i have received.

the only thing i am not sure about it is remortgaging. If you remortgage (with co-op) after the fixed period, will the Ownhome loan get revalued at the same time that the co-op do the mortgage valuation?

THIS IS INCORRECT!

With regards to point 2 you DO NOT pay back less if the value of your house drops. PLEASE BE WARNED OF THIS! If you read through the documentation carefully it clearly states that the amount you pay back to ownhome will always be the original amount you borrowed or higher. If the value of the property drops then you pay back the original loan, if it increases then you pay back the new percentage amount.

nig0609

ladybird3 wrote: »

THIS IS INCORRECT!

With regards to point 2 you DO NOT pay back less if the value of your house drops. PLEASE BE WARNED OF THIS! If you read through the documentation carefully it clearly states that the amount you pay back to ownhome will always be the original amount you borrowed or higher. If the value of the property drops then you pay back the original loan, if it increases then you pay back the new percentage amount.

This applies to the first 3 years only.

Quoting page 1 the loan agreement (please excuse ayn typos):
"If you sell you house or want to repay the amount you have borrowed in the first three years of this agreement then you will have to pay us at least the amount you borrowed. However, thereafter, if the value of your home is less than when you bought it, we will only require you to repay the percentage value that we lent you based on the reduced value of your home.

Because of this it is not possible to work out what the total charges you will have to pay will be or what the APR is. You may have to repay less than you borrowed, or the same amount, but it is likely that you will have to repay more."

I think most of us already assume we will pay more than we borrow.

ladybird3

I absolutely stand CORRECTED! :rotfl:

nig0609

at least its good news, hopefully house prices drop and we all pay less than we borrowed. this scheme is a nightmare to get ones head around.

Thanks to everyone who has contributed useful info to this very useful thread, it has been very useful.

As to those who claim these schemes are scams and 50%+ Falls in House Prices by Christmas 2009 .... WHATEVER!!, get a life