Co-Op Ownhome scheme-serious advice/help needed!

sturgeon

http://www.ownhome.co.uk

This scheme is from the co-op. They lend you up to 40% of the value of the home you'd like to buy, with the remainder to pay on one of their own mortgage schemes. The 40% they lend you is repayable when the house is sold, at the current market value. So if the market recovers you could pay more than you borrowed, if it doesn't you won't. You don't pay interest on the 40% loan for five years, at that point you pay 1.75% for five years and after ten years pay 3.75% for the remainder.

The flats I'm looking at are about £180,000. So say they give me 40%, £72000 and I get a mortgage for the remaining £108,000.

Say in 5 years prices have gone up and I sell it for £200,000. I pay the 40% back which is now £80,000. My profit on the sale is £12,000 (60% of the £20,000 profit as the other 40% goes to them).

Unless I'm being thick, I don't see where the problem is. In that 5 years I haven't paid a penny in interest on the £72,000 loan. And yes that 40% is now worth £8k than it was 5 years ago...however I can easily save money and put into a high interest account and make several times that £8k. Plus, my current rent works out to around £10k a year...which is money that is totally chucked down the drain.

One thing I don't get is, once I sell the house, I'm left with £120,000 after giving them their percentage back. So how do I buy my next house? I re-apply for a bigger mortgage? As by that time my salary should be enough to get a 'normal' mortgage. Does my 25 year period restart or just continue with larger repayments each month? And say I wanted to buy a flat for £250k at that time (as prices are gone up and I'd like a slight upgrade) would the £250k mortgage still be based on my salary (meaning I'd need to earn £50k) or will the £120,000 take any money off the mortgage?

Sorry for all the questions....I'm seriously looking into doing this. People on other forums are telling me different things...yet I'm sure I've done the maths right. For example I've been told a percentage of my monthly repayments will be paying the loan off, but doesn't the website state the loan is only paid off (and in full) when the house is sold? So shouldn't I just be paying normal mortgage repayments, at least for the five years where no interest is charged on the loan? You have the OPTION to pay it off, in 5% installments, if you wanted to, as far as I can see, but don't have to make monthly payments towards the 40% loan.

For example I have been told:

Well for one, in 5 years you more than likely will have paid off about 5k of the capital taking the mortgage down to 103k and £14,418 of the loan taking it down to £57,582. Now your house is worth 200k but after redeeming the rest of the mortgage and the loan when you sell for £160,582 (that's without adding any early repayment fees on the actual mortgage), you also owe them 40% of the value of the house which is £80,000.

£160,582 + 80,000 = £240,582. At the end of that you are £40,582 worse off because you chose to pay it back in 5 years.

That seems wrong to me, as they have factored in paying £14,418 of the loan...but as I've stated you don't pay off the loan until the house is sold. And for me to be £40,582 worse off just by the house price increasing from £180,000 to £200,000 in 5 years sounds very wrong to me!!

Any advice greatly appreciated!

Wickedkitten

Let's not forget the bit where you said


(edit) and also, after 5 years you'd have paid far more than £5k of the mortgage, seeing as repayments at 5.19%, which is the rate you have to take, work out to about £540 a month...so that's £31,800 after 5 years of the mortgage repaid.


and i just updated saying

I'm confused after reading two conflicting things, one says that the graph on the website is misleading and you have to do the 40% of the value on top of the loan which is why they want you to keep the loan for longer and the other is saying that the 40% either lowered or raised to 40% of the total price.

Personally I'd still say you are better off trying to get a normal mortgage

sturgeon

But mortgage calculators tell me that a £108,000 mortgage would cost £650 a month at 5.19% over 25 years. So each year, £5605 in interest is paid leaving £2195 a year remaining, which I assumes pays off the capital. So after 5 years that would mean £10,975 of the capital is paid and £28,025 of interest. Or is that wrong? If a mortgage is at 5.19% does that mean I pay that percentage of the original mortgage per year? Or 5.19% of the remainder of the capital, per year?? god this is confusing.

Sooler

sturgeon wrote: »

One thing I don't get is, once I sell the house, I'm left with £120,000 after giving them their percentage back. So how do I buy my next house?

You pay off the outstanding amount on the £108 000 mortgage, say £108 000.

You apply for a new mortgage based on having £12000 cash and your salary income.

beecher

What happnes if prices go down in the next 5 years?

sturgeon

Then the 40% borrowed is worth less than it was originally, surely?