Homebuy Direct

ox1

I'm in a position where I've suddenly found myself with a comfortable salary, comfortable enough to be able to pay a mortgage, but I have no deposit.

I've seen some fairly aggressive posts in response to people saying they want to buy without a deposit so hear me out first!:
I currently rent a 2-bed flat for 950pcm with my friend who is moving out in the summer. I've decided to live on my own as I don't want to live with a stranger so I started to look at 1-bedroom flats. Around here, they stand at about £700pcm, usually for little more than a shoebox, so I figured if I did pay that much I would much prefer that money to be going towards a mortgage.

Cue the new Homebuy Direct scheme aimed at 'no chance' First-Time Buyers announced last week- I know some of you will scoff at these, but this is a new one and it is introduced to kickstart the housing market and, importantly, the housebuilding industry, so don't dismiss it offhand!

I'd need a 70% mortgage and the remaining 30% would be an equity loan, payable as a deposit, and repayable after 5 years at 1.75%, then 3% from year 6.

http://www.communities.gov.uk/housing/buyingselling/ownershipschemes/homebuy/HomeBuyDirect/

I'm very aware of the 'wait until you have a deposit' argument so please don't respond with that- I'm currently 26 and, if I'm looking to buy on my own, I estimate it wouldn't be for another 10 years so would like to get into the impossible housing market as soon as possible! This scheme seems just right for me- but what do you think?

Thanks in advance for your advice!

SwissLe

You are exactly right. Rent is going up and house prices are going down, in most areas. You don't say where you are from, but I wouldn't advise buying a 1 bed apartment, especially in a 'new build' apartment block. A 2 bed makes a much better investment for not much more outlay.

Have you considered the option of looking around, it may mean waiting a few months, and picking up a repossession. This is a good theory an estate agent friend told me about - then I put into practice with a friend. He got his father to buy a repossesion flat at £80,000 knowing well the current market value was much higher than this. My friend then went and got a mortgage to buy the property for £90,000 therefore giving him a £10,000 deposit but at a very competitive mortgage rate.

mrgerrard

Don't buy!

At the moment rates are very bad unless you have a 25% deposit or more, once prices have fallen and lending resumed to normal proportions though you would be able to get a good rate with a 90% mortgage.

As a newbuild property its value is likely to drop further in a downturn leaving you in possible negative equity, a lot of housebuilders have also neglected to drop their prices at all and have simply provided alternative methods of funding.

Think about it, in a years time you could purchase a bigger property at a lower price, with fewer risks and no extra loan. Think about the risk of being in negative equity with a mortgage and loan to repay and without the ability to move on.

Sorry to be so doomladen but you really are better off waiting.

brummybloke

well you need to weigh up the pros and cons

if it is the open market version you are going for then

pros - no deposit required and you are able to get the best rate due to the 30% equity being used as the deposit.
only having to pay 70% mortgage for 5 years which makes things far more affordable.
having your own place instead of renting, you wouldnt need to ask if you want to do anything to the place.

cons- after 5 years you then pay back 1.75% on that 30%, however will rates go that low for fixed rates?
you wont own the entire place which means when you sell you will still have a short fall of 30% unless there is a massive rise in property in that area and you are very lucky.

it is a decent scheme, one which is oddly panned on here by people who seem to be getting it confused with other homebuy schemes where you have to get a new build.

if you got a 2 bed place then you can rent out a room if you want to, maybe to a friend? that way, after 5 years if you saved the rent you would have enough to buy back a decent chunk of the equity before house prices go up too much. you may be even more lucky and in 5 years the place is worth less so you can buy back equity for less than you borrowed.
it also takes the sting out of buying now and prices reduce, you would not be taking a full 100% hit on devaluing, only a 60 or 70% depending on how much equity you borrowed.

you would be better trying to get either an established flat or terrace house, new builds may end up with loads of social housing people inside them if developers cant sell them.
not something you may want if you are buying your own place.

socrates

brummybloke

I have to admit I do not know a lot about these schemes. However in your post you have summed it up nicely and given a very balanced view of both sides of the coin.

Too many people on here are quick to flame or talk down to OP's and others.

People forget this is a money saving website and the OP is in effect trying to save money

I commend you

beingjdc

SwissLe wrote: »

You are exactly right. Rent is going up and house prices are going down, in most areas.

In fact, rents are falling too, across most of the country.

mrgerrard

I criticised the homebuy scheme heavily earlier in the post and other posters took exception to the strength of my criticism of these schemes.

To qualify my remarks, I have looked into these schemes in detail as I am a key worker (teacher) so homebuy has been available to me for a few years. Very few teachers have taken up these schemes and the only person I know who has purchased a flat (not new build) using Homebuy has got into all kinds of difficulties.

She bought the flat 2 years ago and its value has fallen in value since then. She would like to move somewhere bigger however she is required to repay the loan which she is now unable to do. She has found herself in the position of repaying a mortgage and also the interest payments for the loan.

She is able to afford to do this but in doing so she has a more limited budget for other living expenses.

I am not saying that you should never even consider the Homebuy scheme but I would recommend you save for a small deposit and wait a little longer.

socrates

mrgerrard wrote: »

I criticised the homebuy scheme heavily earlier in the post and other posters took exception to the strength of my criticism of these schemes.

To qualify my remarks, I have looked into these schemes in detail as I am a key worker (teacher) so homebuy has been available to me for a few years. Very few teachers have taken up these schemes and the only person I know who has purchased a flat (not new build) using Homebuy has got into all kinds of difficulties.

She bought the flat 2 years ago and its value has fallen in value since then. She would like to move somewhere bigger however she is required to repay the loan which she is now unable to do. She has found herself in the position of repaying a mortgage and also the interest payments for the loan.

She is able to afford to do this but in doing so she has a more limited budget for other living expenses.

I am not saying that you should never even consider the Homebuy scheme but I would recommend you save for a small deposit and wait a little longer.

As a matter of interest what would the situation be if the prices had not dropped - would it be a good scheme?

mrgerrard

I think you have to look in greater detail at the equity loan. Are you repaying the loan while only retaining a 70% share of the house? or does the mortage and loan equal an eventual 100% ownership?

IMHO there are simply too many questions these schemes raise longer term

brummybloke

socrates wrote: »

As a matter of interest what would the situation be if the prices had not dropped - would it be a good scheme?

unless that keyworker scheme is significantly different to others, if the house is worth less you repay LESS.

it is an equity scheme, you repay the equity which is in % rather than a fixed £.

if you purchased for 100k and 40% was through this scheme you would be borrowing 40k

if the house slumped to 50k you would only have to pay back 20k.

and you only pay them back ONCE the house has sold.

the teacher is in a better position than if they had taken the mortgage traditionally, they would be taking a hit for ALL of the losses in the flat rather than just the % they took out.

brummybloke

mrgerrard wrote: »

I think you have to look in greater detail at the equity loan. Are you repaying the loan while only retaining a 70% share of the house? or does the mortage and loan equal an eventual 100% ownership?

IMHO there are simply too many questions these schemes raise longer term

again, maybe the scheme you are on about is completely different, or you havent read it all properly?

you only pay back interest on the loan and ONLY pay the loan back when the mortgage ends or you sell up.

you OWN 100% of the house, well just as much as you would through conventional mortgage.

that is for the keyworker scheme for the south west, so unless the schemes are completely different under the key worker scheme, you may have some information wrong?