Buying a new build with the governemnts home buy scheme.

martins333

Hello,

I'm thinking about buying a 3 bedroom house in newcastle with the governments new 'Home Buy' scheme. They will lend me a 25% deposit (£40k) which I do not have to pay back until 10 years have past and I get a Mortgage for the remaining 120k which is 3 times my joint salary. I think this is a good deal but am getting conflicting advice from my friends. Does anyone here have any advice.

Cheers

Dinah93

Personally, wouldn't touch it with a 10ft pole. You are going to have to pay back a lot more over the long run, you will be limited in the mortgages you can apply for and have to pay a higher rate, and you can only remortgage to cover the 40k if your property has risen in value that much. More to be fair, since the lenders will still require you to have equity in the property, so lets say it'd have to rise, or you would have had to pay off 80k in order to remortgage to repay the 40k borrowed as a deposit now... you see where the huge flaw in this scheme is starting to creep in? Save the 40k yourself, these schemes artificually inflate a properties price. It is not a good idea to be paying twice for the one property, most people wouldn't, and if the market continues on its downward trend (which I think very likely for a few years since mortgages are becoming much harder for FTBs to get) you will see properties the same as yours 100% ownership at the same price as for the 75% you own, and you will not be able to remortgage.

You have no idea how your life will be in ten years, you can have an idea of where you want it to be, but these schemes are basically a huge gamble that property prices will continue to rise, you'll be promoted, and your outgoings will not increase.

Idiophreak

Dinah93 wrote: »

Save the 40k yourself,

Ah, expect the OP didn't realise it was that simple :rolleyes:

These schemes aren't perfect, obviously - not owning (ETA: obviously, the word "owning" is stupid, here - as on shared equity, for instance, you *would* "own" the property, but excuse my inaccuracy, anyway) 25% of your house is, admittedly, quite a big deal - but they are a way of FTBs getting a step on the ladder at least.

Obviously, I'd love to just be able to borrow 100% of the property price and be done with it - but thanks to the greed of other people in the last few years, that's no longer possible.

So I have two options 1) Use this kind of scheme or 2) Save for a deposit. Rent on a 2 bed flat around here will work out at something like £200/month more than a mortgage on the same property using one of these schemes - so, actually, I stand a much better chance of saving the extra 25% on the scheme than I do renting and trying to save at the same time.

£40,000 (which, incidentally, I've been advised would be the expected deposit on a flat I'm currently looking at, without the scheme) would take over 8 years to save even at £400/month. And there's a possibility that £40k then won't be even be enough, still and it would be necessary to continue renting further. There is that old saying about a bird in the hand...And, of course, that's ignoring the fact that, on the scheme, in 8 years time I'll already have paid 8 years of the mortgage off, instead of starting at 0 then...

Obviously, as I said, the scheme isn't perfect and it's not for everyone, but it's hard to dismiss it out of hand, when FTBs have so few options at the moment...

Dinah93

Most FTBs accept they need to save the deposit, these kinds of scheme weren't around 20 years ago, and housing costs were within the 3x salary of most people. Up front a mortgage might be £200 less a month, but over the course of a few years with the maintenance etc I would doubt the rental would work out more expensive. The banks have brought back in the need for a deposit for the protection of both the bank and the buyer. I am aspiring to be a FTB, and 40k is infact exactly what I am aiming to save as my deposit over the next 23 months, from a salary of 26k. I am determined to do this, in the same way I have almost finished clearing 16k of debt in significantly under a year. I just have to take a longer term view despite ideally wanting to have my house now. Rent somewhere cheaply, and have the satisfaction and security of owning 100% of your own home with no extra nasties.