It's legal, but is it moral??

noh

tiamai_d wrote: »

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Fourthly, I don't see a morgage as 'debt' and I couldn't care less if you think dfferent.............

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However you chose to see it a mortgage is a debt and it does have a t in it.

Nigel

soolin

I rarely post on this board but I just had to say I am worried that as we approach a probable recession that there is still any misunderstanding about mortgage debt.

Dictionary.com says the following about a mortgage:

Synonyms of mortgage
pledge, contract, deed, encumbrance, hock, lien, loan, obligation, pawn, trust, debt, title

kunekune

Unfortunately, Nigel, "choose" has a second "o".
People in glass houses and all that ...

custardy

tiamai_d wrote: »

Firstly, where I live house prices have not gone up enough to go down.

Secondly, the builder is a company who have built thousands of houses so not likely to go out of business.

Thirdly, I do understand sarcasm.

Fourthly, I don't see a morgage as 'debt' and I couldn't care less if you think dfferent.

Fithly, I have not yet decided whether to live in the property or not, and it will probably take till June for me to decide.

as said,i would be wary of expected values for resale
on your second point,being a big business doesnt mean they cant go bust especially in the building trade just now

Running_Horse

ad9898 wrote: »

Is this a wind up?, the OP has a large post count, so can't believe they can be so naive.

That many thanks from so few posts is very impressive, and suggests they usually reside in one of the gentler forums.

We may not sugar coat the things we say here, but there are many who know what they are talking about, and anyone planning to take on debt to make money from property at this time would be well advised to listen.

soolin

Another thing I would say is that I don't know the Scottish market, but here in London new developments are the ones struggling.

Early last year I was looking at a new build flat off plan for an investment idea (basically bailing out my DS), flat was selling off plan at £199.99, on completion they struggled to sell and now command around £179.99 - £189.99 at a few months old, some are being sold without the original owner ever moving in. There is a jungle of boards outside from people desperate to recoup some of their costs.

Similar developments that have struggled for years to get planning permission are being put on hold as it is obvious that there just isn't the money to sustain this level of new build and sales.

silvercar

The builder may not go bust but could decide not to finish this development for a year or two.

Say there is a 6 month gap between the house being finished and it being sold on. Can you pay both mortgages for that time? What if the only offer you get is not giving you a profit? Remember at the same time that you are selling it, the builder will be selling the same style house.

You will not get a 100% mortgage, as a second property mortgage you are looking at at least 20% deposit; money that could be earning interest for you elsewhere.

I'm not saying don't do it, just to check the risk is worth the gain. Remeber that, if you do make a gain and have never lived in the property as your PPR, it will be subject to capital gain tax.

Some figures, based on your assumptions.

£150k value, bought for £130k so £20k potential gain. But you need to sell before completion and you are competing with the builder, so say £15k quick profit. Less estate agent fees and legal fees. I'd guess at around £700 buying and selling legal fees and 1.5% + VAT EA fees = £3,500. So gain could be £11,5k.

Second scenario is you don't sell before completion. So you have to raise a mortgage (fees of say £1k), you have interest on that mortgage each month and you are losing interest on your deposit that could be in a safe savings account. Roughly speaking you are looking at 6.5% of £130k about £700 a month. Still have legal fees and estate agent fees. With pressure on to sell, as it is costing you each month, you would probably now accept an offer of £145k and that assumes no movement in house prices. 6 months mortgage and your profit has dropped from £11.5k to £7,300. Difficulty in selling/ managing your mortgage/ house price falls in the area (remember we could be a year down the line before the house is completed) and you could be tempted to accept £140k. If you've waited a year from completion you now have £10k profit, fees of £3.5k and mortgage costs of £8.4k. Now you are losing money and you haven't even switched the heating on to keep the property dry and presentable, laid any carpets or turfed the front lawn.

Lets do a third scenario. Prices hold up well, you spend £5k sprucing the house up, carpets, landscaped garden, fitted wardrobes, granite worktops. House is valued at £160k. You sell after 6 months of ownership. £30k gain, less £3.5k legals and EA, less £5k you've spent = £21.5k less mortgage costs (arranging and payments) of £5k. Gain=£16.5k. This is looking good, if you can stand the strain of owning and maintaining two homes, have funds to improve, and can fund the investment until sale. If you need to pay costs by taking an expensive loan/ credit cards, the cost will add up and your profits will dwindle.

Is it a risk worth taking; only you can decide.

One part I don't get, judge people by their actions not what they say. If the EA says you can resell, ignore he is only after his commission. If the builder is selling a property worth £150k for £130k ask your self "why?" Either he knows that is all it is worth or he wants a quick sale to improve his year end accounts or has cash flow problems.

beecher

This sort of tactic was very popular during the boom times, but is a recipe for disaster now. Whether it is 'moral' or not is irrelevant - it is a huge risk, and I certainly wouldn't touch it with a bargepole. The housing market is dead, and the new build sector isn't moving at all as people need large deposits.

The housebuilding sector is in decline so don't bank on your builder still being in business by June, regardless of how many houses they've build. There are many building works in Scotland which are mothballed at the moment.

I also wouldn't bank on house prices not going down just because they haven't gone up that much. I would also question whether they haven't - what area are you thinking of buying? I didn't think any area of Scotland had failed to see enormous growth in house prices.

Good luck with whatever you decide, but be very wary - a housebuilder is very unlikely to just 'give' you £20k and in reality your 3 bed house may really be 'worth' under £100k.

Jonbvn

Sorry but we are not as touchy-feely as the DFW board.

Seems to me that you believe what the estate ageny or developers sales rep is telling you.

You are clearly extremely naive when you say you choose not to see a mortgage as a debt. Try not paying this debt and then make such a ludicrous statement!

Oh and try getting a mortgage based on some open promise of completion in 2 years?

hethmar

As everyone has said here - firstly I think the estate agent is telling porkies or you have misunderstood him - once you exchange thats it, done deal, you are responsible. If he is saying the marketing is booming and you could sell on to another eager buyer - then I think he is not telling you the truth.

If this is a house you want to live in, not make money from then if you can afford it and the price is ok then go ahead but see first if you can get any interest in your current property. You say the houses are a great deal because they are £20k less than usual? This should tell you that the market is struggling.

Re the builders not going under - sorry but some of the biggest building companies in the country are in trouble at the moment, let alone small localised ones.