Is this a good deal?

hazbow

There are some new development homes in my home town and they are offering what seem like a good deal for first time buyers at the site.

No deposit required, you get a mortgage for 75% of the property (around £125k) and the other 25% of the property is paid for by them (though they say its 100% yours). Then the 25% they paid is added to the mortgage in 10 years.

Any thoughts?

jay3_2

There are a number of important questions that need answering first such as:

1. What type of mortgage is it? Is it portable? Redemption penalties, fees?
2. Who is the mortgage with? Do you have any choice as to the lender?
3. If you imagine that you were responsible for 100% of the mortgage from day 1, could you comfortably afford the monthly payments?
4. Do you have any funds available for a deposit? (I know the builder isn't asking for one)
5. What interest rate is the mortgage at (a) today and (b) in 10 years time? (ie. what formula will be used to calculate interest in 10 years time?)
6. What happens if you sell the property within 10 years?
7. Can you switch mortgage lenders?
8. What are the rules on buildings insurance relating to the mortgage?

These are fundamental, even before you've considered the usual ones like: what will happen to house prices in the next 10 years? Or will I still have a job in 12 months?

As you can tell, I'm a bit sceptical about this offer on the bare facts you've given. I'm not saying rule it out, but I'd be extremely cautious.

Where is the house?

Xinpei

hi hazbow there was a very good thread about this exact same offer. Do a search for it (good luck with finding it though..). But the general sentiment from that discussion is that this is not as good a deal as it sounds.

hazbow

jay3 wrote: »

There are a number of important questions that need answering first such as:

1. What type of mortgage is it? Is it portable? Redemption penalties, fees?
2. Who is the mortgage with? Do you have any choice as to the lender?
3. If you imagine that you were responsible for 100% of the mortgage from day 1, could you comfortably afford the monthly payments?
4. Do you have any funds available for a deposit? (I know the builder isn't asking for one)
5. What interest rate is the mortgage at (a) today and (b) in 10 years time? (ie. what formula will be used to calculate interest in 10 years time?)
6. What happens if you sell the property within 10 years?
7. Can you switch mortgage lenders?
8. What are the rules on buildings insurance relating to the mortgage?

These are fundamental, even before you've considered the usual ones like: what will happen to house prices in the next 10 years? Or will I still have a job in 12 months?

As you can tell, I'm a bit sceptical about this offer on the bare facts you've given. I'm not saying rule it out, but I'd be extremely cautious.

Where is the house?

It is in Crawley, West Sussex at the Pembroke Park development.

Thanks for listing those questions, gives me some stuff to think about and to research. Im not in a hurry to buy so have some time to look into it.

littlened

Be careful,

We looked at some new houses, and the mortgage had to be taken out by a mortgage company of their choice.

Basically, you get a mortgage for 75% of the property value, the developer pays the rest, it's basically a loan to you. In ten years time, they'll add it onto the mortgage, but generally speaking they'll add 25% of what the property is valued at in 10 years time.

So, the house is 100k, you get a mortgage for £75k. In 10 years time the house is worth £150k, you now owe the developer £37500. Which you can either pay, or have added onto your mortgage. If you add it onto the mortgage, then essentially you are paying £112k for the property.

Think of it like this, they will lend you the 25% deposit, that's all it is.

zone

Nothing is 100% until you have paid off the mortgage in full. So be careful what you buy.