Advice Needed - 75/25 Scheme

gryhen

Hello

My Girlfriend and I have decided to buy a really nice new build apartment built by Bryant Homes. We have decided to go for the 75/25 scheme where we pay back 25% within 10 years.

The apartment we have chosen is £119.950, however there is absolutely no negotiation on price due to the 75/25 scheme. Also the sales guy advised us that due to the scheme the price will be £124,950. We were also only allowed to use Bryants chosen mortgage broker. We applied for the joint mortgage but got turned down due to a default on my credit history, my wage is £30k and my girlfriend's is £21K. On the broker's advice my girlfriend reapplied with a sole application which was accepted.

So based on a 75% £93,750 3 year fixed rate mortgage the payments will be £480ish a month which is good because we could then save a substantial amount per month to go towards paying off the 25%.

Now we have been waiting for the valuation to come through from the broker but we were told there was a problem with the initial valuation as it came back saying the property value was worth £115,000. Another valuation has been done which is now fine but I am now very worried that we are paying £10k extra for the 75/25 scheme and that the mortgage company has mangage to up the value some how.

I only have a £500 deposit on the apartment at the moment so not a great deal to lose if I pull out.

Could anyone offer me any advice or thoughts on the above and whether we might regret rushing in.

Thanks in advance

maninthestreet

It's a new build, so it's likely to be overpriced - why pay a £5,000 premium simply because you are using the 75/25 scheme?

Tiddler_2

Which lender is the mortgage with, have you received a copy of the valuations? (You should have if you have paid a fee for it!)

You are almost certainly paying more for the property because you are having the 75-25 scheme, as the builder would have done a deal if you were looking to buy the full property, usually around a 5% discount.

I can see both sides of the argument - Banks argue that this dual pricing is wrong and if they are comparing 2 similar properties will value it at the lower price. However, it is more or less the same as anything you buy - if you pay for the whole thing upfront you can usually negotiate a discount. The builder is taking a gamble that the property will increase in value, otherwise they "lend" you the 25% interest free. They are also tying up their money for the next 10 years.

Some lenders are also valuing new build properties on a like for like basis with 2nd hand properties - but do you compare cars in the same way? There is always a premium price to pay for being the first user of something!!

I would also add that the scheme saves you a lot of money on interest rates a 90% mortgage would cost around 6.5% minimum (if you could find someone to do it) where as a 75% deal would cost you around 4-5% plus you don't have to find a deposit!

Idiophreak

Just to say I'm in a similar position.

Buying a new home on a 75/25 scheme - like you, they refused to budge on the asking price if we used the scheme, but they assured us they'd set the price by getting independant valuations done. Anyway, because we were using the scheme we agreed to pay the asking price, aware that it would be on the high side (as it's paying asking on a new build...) - but the valuation's come through today at 190/225. Either the valuation was low, or the asking high - not sure yet, we're awaiting a second opinion..Anyway - hope it works out OK for you.

maninthestreet - the answer to "why pay a £5k premium to use the scheme" is because it actually lets you buy a house. If you don't have a deposit, you can't normally get a mortgage.

So I guess OP's left with either a) use a scheme and pay the high end of the market - costing, in this case, 5k or b) raise the deposit through personal loans (around 30k to get to 25%) - what are the chances of paying less than 5k interest on that over the length of the loan? c) raise a smaller deposit privately and pay a higher interest rate (plus interest on the deposit).

beecher

or d) save up a deposit

I understand that will take a long time, but it is what people did in the past. In my opinion house prices have a long way to fall yet, and new builds are falling further than most. Seems a huge gamble to me and I must admit I don't understand the desperation.

Idiophreak

beecher wrote: »

or d) save up a deposit

I understand that will take a long time, but it is what people did in the past. In my opinion house prices have a long way to fall yet, and new builds are falling further than most. Seems a huge gamble to me and I must admit I don't understand the desperation.

This fall comes off the back of many years in which most FTBs have been priced out of the market altogether - so it's not surprising that people are keen to jump on the ladder now while it's more affordable.

(It's worthy of note that they've been priced out, in part, by people borrowing 100%+ LTV - so your "what people did in the past" is a little inaccurate speaking of the immediate past, certainly)

And you're right, saving for a deposit is extremely hard, especially if you're paying rent that, at the moment, is likely to be higher than a mortgage on a similar property. Again, you have to weigh any money you'd save against the 5-10 years you'd not be paying a mortgage while you saved for the deposit.