AVOID My Choice Homebuy!!!

Jumping_Bean

Chris2685 wrote: »

MyChoice HomeBuy enables applicants to apply for a mortgage with any lender they choose. The scheme would provide them with up to 50% of the value of the property as an equity loan. The remainder would be funded through a conventional mortgage with a Financial Services Authority regulated lender. They would pay a lowrate of 1.75% per annum on the equity loan funded by one of eight housing associations who are acting as equity loan providers*. The rate they pay on the standard mortgage would depend on the deal selected through the mortgage providers.
With both products, no deposit is required, but is allowed. When the property is sold, the equity loan provider will be entitled to a share of any increase [or decrease] in the value of the property.

Source = http://www.firstrungnow.com/open-market-homebuy/

Some bits of that are wrong/out of date though.

It is similar to the part rent part buy schemes, but is slightly more flexible, but also more difficult to sort out!

So the loan portion is paid back over the same term as the mortgage portion? And after the loan is paid back the house is 100% yours? Presumably the amount of equity the Government / Housing Association has a claim on reduces with every payment you make on the loan?

If the answer to the above questions is yes and prices weren't so stupidly high and falling fast then it wouldn't actually be a bad deal. It's like getting half your mortgage at 1.75% fixed forever or until you sell.

Problem is that if you want / have to sell in the next few years the house probably won't be worth anywhere near what you borrowed (However much it cost you to borrow it). Then you'll be in negative equity just the same as someone who isn't on the scheme.

Running_Horse

Came across this Ownplace scheme in Merseyside:
http://www.ownplace.org/What_is_Ownplace.asp
Can't see any catches from the buyer's perspective.

Chris2685

Jumping Bean - that is pretty much correct, yes. Apart from the paying back the equity loan bit, each time you want to pay a bit back you have to have the house revalued by a surveyor, and pay back chunks from 10% to 100% of the loan each time. You actually only pay interest on the loan until the time comes that you can afford to pay back a reasonable amount that makes it worth the valuation costs.

Also the percentage repayable starts at 1.5% in the first year, but does increase with each year (The annual 1.75% charge increases by a value of the Retail Price Index (RPI) + 1% on the equity loan provided.)
I did have an example somewhere, but it worked out that by around year 10 you were paying roughly 8% interest, which makes it a very good idea to try and pay off some of the loan by then! But over the long term average I think it worked out at 8% over around 15 years or something if my memory serves me correctly.

There are plenty of leaflets online if you do a google describing the scheme in more detail, such as this one:
http://www.home2own.org.uk/Data/Pub/StreamTemp/rad8EA87.pdf
Or this one has a nice costing example:
http://www.ncdc.gov.uk/media/adobe/7/i/My_Choice_HomeBuy_Info.pdf

As you say, if you have to sell or think you will have to sell any sooner than 5 years, it really isn't worth bothering with, as you have worry about paying back the equity loan AND the mortgage! However, in my case it has allowed me and my girlfriend to buy our second home first, which is really great

wymondham

Running_Horse wrote: »

Came across this Ownplace scheme in Merseyside:
http://www.ownplace.org/What_is_Ownplace.asp
Can't see any catches from the buyer's perspective.

Interesting one this, as if I've read this correctly you get 25% off the property (not a new build so that's a good start!), and don't have to repay a penny of this 25% if you stay in it for more than 5 years ...... too good to be true??? Can anyone see a catch at all, other than it is valued at todays market prices so will drop like all others, but if you paid 25% less anyway that's a pretty good buffer....

Ian_Griffiths_Halifax

wymondham wrote: »

Interesting one this, as if I've read this correctly you get 25% off the property (not a new build so that's a good start!), and don't have to repay a penny of this 25% if you stay in it for more than 5 years ...... too good to be true??? Can anyone see a catch at all, other than it is valued at todays market prices so will drop like all others, but if you paid 25% less anyway that's a pretty good buffer....

There is likely to be a charge against the house for the 25% as it is repayable within the first 5 years on a sliding scale, like a Right to Buy discount.

Because of that but mainly because of the restrictions on who you can sell to in the future, it will be difficult to arrange a mortgage on the property unless there is an agreement in place already with a Lender/s as this isn't something they'll come across every day.

I came across something similar but not the same in Leeds. It was for First Time Buyer Key Workers and gave something like 25% discount off the 'true' value, but the term Key Worker wasn't restricted to just such as Teachers, Doctors, Nurses, Police Fire etc, as my client was a Plumber. The restriction was that it could only ever be sold to another Key Worker and if, within a set timescale, the place couldn't be sold by the Seller to a Key Worker through their own efforts, then it had to be Sold through the Housing Association.

Because of the restriction (what if it had to be repossessed) Lenders wouldn't touch it, but a few Lenders had looked over the Contracts and had seen the Restrictions, they got agreements with, off the top of my head, Nationwide, Halifax and Leeds & Holbeck (now Leeds B/S).

Even having agreed to do mortgages, it was difficult getting the mortgage through as nobody had told the Underwriting Dept and nobody at the Housing Association could tell me which branch/dept had looked at it

All the hassle aside, this looks like a good deal for the buyers if they can manage to get the finance.

Jumping_Bean

Chris2685 wrote: »

Jumping Bean - that is pretty much correct, yes. Apart from the paying back the equity loan bit, each time you want to pay a bit back you have to have the house revalued by a surveyor, and pay back chunks from 10% to 100% of the loan each time. You actually only pay interest on the loan until the time comes that you can afford to pay back a reasonable amount that makes it worth the valuation costs.

Also the percentage repayable starts at 1.5% in the first year, but does increase with each year (The annual 1.75% charge increases by a value of the Retail Price Index (RPI) + 1% on the equity loan provided.)
I did have an example somewhere, but it worked out that by around year 10 you were paying roughly 8% interest, which makes it a very good idea to try and pay off some of the loan by then! But over the long term average I think it worked out at 8% over around 15 years or something if my memory serves me correctly.

In which case I think it looks a lot less attractive. It seems like an interest only mortgage at a not very good average rate. Also your monthly costs will keep going up as the rate on the loan increases. So not only may you not be able to sell because of negative equity but your payments are going to keep going up every year.

The only advantage I can see (except from being able to buy somewhere right now that you wouldn't be able to afford because prices haven't dropped enough yet) is that they share the (pretty inevitable) negative equity with you.

I would wait and buy when prices have dropped.

Chris2685

Yep, you hit the nail on the head Jumping Bean, that is the only part that I don't like about the scheme. I am going to have roughly 80k to pay back within 10 years if I don't want to end up paying extortionate costs. As long as my wage at least stays the same (hopefully it will get better as I recently graduated :j) then I will have no problem paying that loan back in full in 10 years time, and then only have to worry about the mortgage.

I do wonder what they will do though if the money is never repaid and we live in the house until 80 (58 years!). Would the interest rate keep going up I wonder? Ah well, I will find out soon

fatpig_2

wait for house prices to fall even further (shouldn't have to wait too long) and then buy and ignore this stupid government scheme. I'm sick of the government wasting my tax to prop up inflated property prices.

Chris2685

Sorry, no can do. I'm just going to have to live with the loss if there is one.
Unless we go for a completely different house in a couple of years time, whilst renting now, because we need to move before December (November preferably).
Trouble with renting and letting this go is, we have fallen in love with this house, plus the costs are cheaper than renting anyway for a similar property. This type of house would probably cost 1200-1500pcm to rent, whereas we're only going to be paying 800pcm for loan payment+mortgage payment... We could technically rent a 2 bed place for around 800pcm, but what's the point in that when we can pay off the mortgage instead?

I really can't see prices dropping forever, and I fully expect property values to rise again within the next 5 years at least. I can see us living in this property for over 10 years, possibly even longer.

currynchips

Chris - have you got funding? Has it been confirmed(written, signed)????