Own Home Scheme Pros and Cons

ladybird3

when did P4P get your mortgage offer through? As of yesterday it seems they were dealing with offers recieved between 17th-20th july roughly

Tommy_P

They received it on the 4th of August. My girlfriend wanted to be moved in before she went back to University (end of September), but with this backlog that isn't looking good.

Presido

I understand the angle Shangs1 is coming from which I believe ozzyozzy and ladybird3 may not yet fully appreciate. If Shangs1 has used the £45k deposit to buy a BMW X5 I believe there would be no issue of £45k at the first instance. Or used the money within the past six years to have excellent vacation and stayed in very good hotel. There are others whose parents have their own houses and it would be unfair to tell those people the scheme may not be best for them since their father may willed the properties to them once they became very old and then they later died. It is a matter of perspective.

Looking it another way with the following assumptions and scenarios you will see that it makes very good sense for Shangs1 to make use of this scheme to achieve a suitable accommodation.

Assumption:
a) Someone earns £40k p/annum, excellent credit history, and has £45k deposit.
b) Currently renting a three bedroom flat in Fulham Broadway costing 1800 per month.
c) Office in Oxford Circus in central London.
d) Maximum mortgage multiplier with salary to be by 4.5. This gives £180k.
e) An average quality house to buy in Ealing Borough cost £285k. It should be noted that this similar type of house will cost differently in different areas in London.

Buying without Ownhome
The scenarios become:
i) 4% interest rate at 25% deposit: Gives total funds of £240k.
ii) 5.5% interest rate at 15% deposit: Gives total funds of £212
iii) 6% interest rate at 10% deposit: Gives total funds of £200.
NB: It will be difficult to raise the required purchase price for the house of £285k. They may unfortunately continue renting and paying £1800 every month or they may be tempted to use loan sharks to get up the required money to buy this house. Once the latter is accepted they must pay the loan sharks their interest (normally more than 10%) and capital. There is the good chance that this could lead to repossession has they may not have enough fund to meet up with the Bank mortgage payment.

Buying with OwnHome
In this scheme:
Co-op Bank can give £180k
OwnHome can give £120k

NB: The family can decide to purchase a much higher quality house with the help from OwnHome and achieve the same 4% interest rate if buying without OwnHome. Furthermore they now partly own a home with reduced financial outlay. Further reduction in the equity could mean them only asking for 25% equity loan from the £45k deposit.

ladybird3

Don’t think I had previously passed any comment on shang's situation actually but not to worry!

What I would say however is this. Shangs may find the well saved deposit does cause a few issues with regards to eligibility. I only say this because of the conversation I had with P4P yesterday. They are sending out my loan documents so am quite far down this process which is why I was surprised I was being asked this question at such a late stage given that it can possibly affect your funding. Anyway, what they wanted to know what did I have any substantial savings. My answer was no, that I had a tiny bit saved up that would cover general house buying fees but that was it, entirely truthful.
When I asked why I was told that it was because the housing association apparently can be a bit funny about people who have large amounts saved and are also applying for the scheme.

Not sure exactly how they make decisions on this but actually it may be that they only think it’s a problem if they can see that people have lots saved but are not putting it down as a deposit and are depending entirely on P4P, who knows! Shangs maybe ask about it at your interview?

Presido I think you have explained it perfectly and that would be how I interpret the situation.

ozzyozzy

ladybird3 wrote: »

Just to clarify Ozzy's point, on this scheme you absolutely DO own 100% of the property, it is not a shared ownership scheme and you are not required to pay rent on the part that has been purchased through the equity loan.

You own the property outright however are rquired to pay back the equity loan at the end of the mortgage term or earlier if you wish to.

Yes I knew i would get someone stating that !! You do own 100% of the property thats true it is not shared ownership, perhaps I should of been clearer about what I meant. Namely that from a financial perspective you do NOT own 100% of any gain in the value of the property. So yes legally only you own 100% of the property BUT from a financial point of view any gain in the value is limited to the equity you own. So for example if you have a £200k home and own 60% of the value because you have a 40% equity loan. Lets say the value increases by 50% over 5 years, thats a gain in value of £100k, BUT you only own 60% of that gain i.e. £60k. You now have to raise capital to buy that monetry 'gain' (£40K) plus of course the original 40% - which is valued at £80k. If you want to own 100% of this property you will have to purchase the remaining 40% - valued at £120k - from PFP & Co-Op, to truly 'own' the property outright.
Obviously if you owned 100% of the property with a regular mortgage, ALL gains would go to you directly, i.e. if your property goes up by £100k, you own ALL that gain. Under Ownhome there is obviously a third party lending you money, and that percentage portion has to be paid back.
Me personally, I never look at it as owning 100% of the property, this is from a legal title point of view, but never from a financial point of view ! THATS WHAT I MEANT IN MY ORIGINAL COMMENT :j
Ozzy.

ladybird3

ok ok! :jonly thought id menttion it otherwise you get the shared ownership questions from people doing that scheme :rotfl:

ozzyozzy

ladybird3 wrote: »

ok ok! :jonly thought id menttion it otherwise you get the shared ownership questions from people doing that scheme :rotfl:

Thats cool ladybird........:D ozzy

Presido

My thinking is that this scheme is an excellent idea and those with contact in powers should do something for this scheme to continue.

Let me put it in simple Arithmetic so anyone can make their own deduction.

Assumption
Buyer has no 40% deposit.
Value of property at year 0 = £200k
Value of equity loan = £80k
Value of Mortgage = £120k
Assumed in 5 years property is valued at £300k. (Note: There are areas in London whose House prices in 2004 have only increased by 10% as at August 2009. There are also other places in London whose House prices have increased by 50% from the value in 2004).

Mortgage payment terms at 4% interest rate for 25 years = 1055.67 per month

Year ----4% Interest

---

Cumulative (100% owned) ---Equity (40%)

---

Mortgage (60%)
1

---

12668.04

---

12668.04

---

5067.22

---

7600.82
2

---

12668.04

---

25336.08

---

10134.43

---

15201.65
3

---

12668.04

---

38004.12

---

15201.65

---

22802.47
4

---

12668.04

---

50672.16

---

20268.86

---

30403.30
5

---

12668.04

---

63340.20

---

25336.08

---

38004.12


Mortgage payment terms at 6% interest rate for 25 years = 1288.59 per month

Year ----6% Interest---- Cumulative (100% owned)

---

Equity (40%)

---

Mortgage (60%)
1

---

15463.08

---

---

15463.08

---

6185.23

---

9277.85
2

---

--15463.08

---

30926.16

---

12370.46

---

18555.70
3

---

15463.08

---

46389.24

---

18555.70

---

27833.54
4

---

15463.08

---

61852.32

---

24740.93

---

37111.39
5

---

15463.08

---

77315.40

---

30926.16

---

46389.24


Take a Loan of £80k from a lender with a repayment terms of 5 years on an interest rate of 9% = 1660.66 per month

Year

---

9% Interest

---

Payment to lender
1

---

19927.92

---

19927.92
2

---

19927.92

---

39855.84
3

---

19927.92

---

59783.76
4

---

19927.92

---

79711.68
5

---

19927.92

---

99639.60

superfran_uk

Presido... thanks for that, but I really think the people on here are quite clued up about the scheme! And actually, contrary to what you say in your first post a 45k deposit may in fact make you ineligible as you are expected to take out a minimum mortgage. As for the rest I'm afraid I didn't read it, font too small! But the maths is explained in the application pack...

Tommy_P

ladybird3 wrote: »

Don’t think I had previously passed any comment on shang's situation actually but not to worry!

What I would say however is this. Shangs may find the well saved deposit does cause a few issues with regards to eligibility. I only say this because of the conversation I had with P4P yesterday. They are sending out my loan documents so am quite far down this process which is why I was surprised I was being asked this question at such a late stage given that it can possibly affect your funding.

LadyBird3 as you have recently received your documents, I was wondering when PfP actually received your complete mortgage offer? I am trying to get an idea where PfP are with their backlog, thanks.