Own Home Scheme Pros and Cons

british_2

It's brilliant, I cant wait to move. WOOOHOOO :beer:

Imp

As posted previously, you just need to be very careful with this mortgage. With a traditional mortgage, you are buying an asset and taking on a liability. With time your liability decreases. With this mortgage, you are buying an asset and taking on a liability, but with time your liability could increase. You really need to be aware and have a plan for this increasing liability.

A year or so ago there were people in the news complaining about shared appreciation mortgages they took out in the 80s, when house prices were falling. These sounded fantastic at the time. You didn't pay any interest on your mortgage, but the bank would be paid a certain (often large) percentage of the value of your house when you sold. With house prices going down, what could go wrong?

The people who took out these mortgages grew old and found the houses they had bought no longer suited them. Some died and the estate wanted to sell off the houses. Those who wanted to change their houses found they couldn't as they only got a small (40% say) share of the sale price. This was insufficient to buy anywhere else. They were trapped in their own homes. The people benefitting from the estates where people had died were annoyed that they didn't get as big an inheritance as they had hoped.

So, be careful and plan.

Wickedkitten

michael1983l wrote: »

My mortgage is fixed at 5 years, even so when Interest rates go up so do the rents. Whats the difference apart from I am paying my mortgage instead of somebody else's?

That's not what I asked you.

Does anybody? Is it that different to somebody who took out a 100% mortgage that were readily available not that long ago?

100% mortgages or even better 125% ones are just as bad, but it's still completely different to someone on a 100% mortgage. At least someone on a 100% mortgage is going to know once they have paid off their last payment, that's it.

They are not lending to people who cannot afford it, they are simply giving these people instant access rather than forcing them to wait ten years, in which time they could have paid a large chunk of their share of the mortgage.

From what I'm reading from people actually on the scheme, the co-op requires you to take out the maximum mortgage that you can borrow and then top it up and the only requirement is that you have to have 3k worth of savings in order to pay the fees and not make more than 60k a year.

It isn't that difficult to see the concept in this, the only ones that will run into trouble will be those that would never get on the ladder in the first place regardless and they in theory should be screened out in the application process either by the scheme or the lender.

Who are the people that would never get on the ladder in the first place? The people that don't satisfy income multiples and have a big enough deposit?

No matter how you look at it, to buy a house you will have to pay full price eventually, you can either delay that 10 years whilst you save a deposit, or use one of these schemes and save for your share whilst paying your mortgage intead of somebody else's.

I have another question actually specifically about the ownhome scheme. I read somewhere that the mortgage lasts for either the entire term or if you move house and redeem it, is that true?

michael1983l

100% mortgages or even better 125% ones are just as bad, but it's still completely different to someone on a 100% mortgage. At least someone on a 100% mortgage is going to know once they have paid off their last payment, that's it.

I don't get the bit you are not understanding, the people who take these schemes can't get on the ladder anywhere in the near or medium term. There are two options, rent privatly (in my case) or buy 60-80% of a property and start paying it off now. Regardless of tthe increases or decreases you are still going to have to pay 100% of the value eventually on or off the scheme. If the price does rise on your share 20-40% then you pay that rise. If you wait 10 years to get a deposit the prices still rise and you will end up paying a rise on 100% of your house instead of just 20-40%. I don't understand how you can argue against this.



From what I'm reading from people actually on the scheme, the co-op requires you to take out the maximum mortgage that you can borrow and then top it up and the only requirement is that you have to have 3k worth of savings in order to pay the fees and not make more than 60k a year.

Totally incorrect, the scheme calculates the minimum mortgage they expect you to take based on income offset with outgoings. In my case this came to 20k below what Co-op were willing to lend me, so you are wrong.



Who are the people that would never get on the ladder in the first place? The people that don't satisfy income multiples and have a big enough deposit?

The people who cannot afford to pay their share over 25 years, or the life of a mortgage will obviously never be able to afford to buy a house outright in the first place.



I have another question actually specifically about the ownhome scheme. I read somewhere that the mortgage lasts for either the entire term or if you move house and redeem it, is that true?

The mortgage is taken out over 25 years or shorter, the loan off ownhome lasts for this period. If you choose to move then you have to pay back both loans, this could place you in a stiocky situation if you are in negative equity however that is the risk we all take be it on a scheme or not. The forecasts arn't good for house prices in the near future but remember these are first time buyers who will be at the bottom of the market, their prices are fluctuating the least as these are the most affordable houses that are in the most demand. There is a little risk of neg equity but if your prepared to sit tight and pay your mortgage then it won't stay like that forever.

Geeves1980

As a single person, what does the scheme allow you to buy? On the information website it states that a couple with no dependants would be limited to a 2 bed property, I am assuming this is either a flat or a house.

However, as a single person, would the limit be a one or two bed flat or would they allow a two bed house or bungalow?

With the Co-op mortgages, does it have to be a 25 year term or do they allow shorter terms, say 15 years? Also do the terms of the mortgage allow you to have a lodger or add a partner onto the mortgage at a later date if your personal circumstances changed?

michael1983l

Geeves1980 wrote: »

As a single person, what does the scheme allow you to buy? On the information website it states that a couple with no dependants would be limited to a 2 bed property, I am assuming this is either a flat or a house.

However, as a single person, would the limit be a one or two bed flat or would they allow a two bed house or bungalow?

With the Co-op mortgages, does it have to be a 25 year term or do they allow shorter terms, say 15 years? Also do the terms of the mortgage allow you to have a lodger or add a partner onto the mortgage at a later date if your personal circumstances changed?

Your allowed 1 more bedroom than your current requirements. So 2 bed property in the price range you qualify for.

Geeves1980

The other point I wasn't clear on was what happens if you wanted to pay back the loan, say at the 5 year mark just as the interest payments start? Are you only allowed to pay back 5% at a time or can you pay the full amount in one lump sum without having to sell the house and move on?

Wickedkitten

I don't get the bit you are not understanding, the people who take these schemes can't get on the ladder anywhere in the near or medium term. There are two options, rent privatly (in my case) or buy 60-80% of a property and start paying it off now. Regardless of tthe increases or decreases you are still going to have to pay 100% of the value eventually on or off the scheme. If you wait 10 years to get a deposit the prices still rise and you will end up paying a rise on 100% of your house instead of just 20-40%. I don't understand how you can argue against this.

Of course you are going to be paying off 100% of a house regardless, unlike on a shared equity scheme however, if you buy a house that is 150k now with a mortgage of 110k, you know that in 25 years, you will have paid off 110k along with the interest on that 110k. On a shared equity scheme, you have no clue how much you are going to be needing to pay off at the end if you let it run over the 25 year period.

Totally incorrect, the scheme calculates the minimum mortgage they expect you to take based on income offset with outgoings. In my case this came to 20k below what Co-op were willing to lend me, so you are wrong.

The Minimum being what, 3x joint salary or 3.5x single?

The mortgage is taken out over 25 years or shorter, the loan off ownhome lasts for this period. If you choose to move then you have to pay back both loans, this could place you in a stiocky situation if you are in negative equity however that is the risk we all take be it on a scheme or not. The forecasts arn't good for house prices in the near future but remember these are first time buyers who will be at the bottom of the market, their prices are fluctuating the least as these are the most affordable houses that are in the most demand. There is a little risk of neg equity but if your prepared to sit tight and pay your mortgage then it won't stay like that forever.

Can you overpay on your mortgage at all in order to bring the mortgage term down any?



Can I ask how long you've had your house on this?

michael1983l

Geeves1980 wrote: »

The other point I wasn't clear on was what happens if you wanted to pay back the loan, say at the 5 year mark just as the interest payments start? Are you only allowed to pay back 5% at a time or can you pay the full amount in one lump sum without having to sell the house and move on?

You can pay all or any multiples of 5% in any transaction.

michael1983l

Of course you are going to be paying off 100% of a house regardless, unlike on a shared equity scheme however, if you buy a house that is 150k now with a mortgage of 110k, you know that in 25 years, you will have paid off 110k along with the interest on that 110k. On a shared equity scheme, you have no clue how much you are going to be needing to pay off at the end if you let it run over the 25 year period.

What you are missing is that if the house price rises, the new home will have risen when you lok to buy in the future if you wait without going on the scheme. Except 100% has risen rather than the 20-40% that would rise on the scheme. So actually you will be better off in this circumstance.



The Minimum being what, 3x joint salary or 3.5x single?

Yes thats correct, except they take your outgoings into account and deduct them somehow, so if you have a stack of debt your ammount you are asked to borrow will be much lower.



Can you overpay on your mortgage at all in order to bring the mortgage term down any?

Yes within the terms of your conditions with the lender, however once you've paid the mortgage the own home expect you to settle also.



Can I ask how long you've had your house on this?

I have just entered the scheme this month.