bloorhome 80/20

wigan84

HI guys, my first post so be gentle.


Me and the Mrs are loking into buying a NB off plan, the first few lines of bricks have already been biult, so it has started.

Price of house is £139,995
we have no deposit
bloorhomes will give us 5% deposit for the house and offer us the 80/20 scheme. Mortgage advisor says he can get us a fixed raite mortgage for 5 years for £556 a month. Seems a bit too good to be true, I am wary of going for the 80/20 deal and was just wondering what you experts think of this type of incentive.


Cheers

Wickedkitten

they are giving you a 5% deposit for a 20% share in your house.


what are the terms of the mortgage?

Richard_Webster

Let's get this clear.

Is the deal that you get a mortgage for 75% of the price and that gets paid to the builder on completion?

The builder "gives" you a 5% deposit so effectively you don't have to pay 5% of the price.

The builder lends you 20% interest free (or whatever - I don't know the specific terms of this 80/20 deal) but at some point you will have to repay the builder 20% of the then value of the property.

Is that it?

Mortgage broker must tell the lender about the 5% deposit and the 20% interest free because that could affect valuation. Certainly your solicitor will have a duty to tell the lender. If I was a lender, I would be curious as to what the builder would sell the house for to someone who didn't need any incentives - maybe £125K - that would be the true value and a sensible lender would base his lending on the real value of the house. Possibly they will accept the 20% "loan" factor because you will have to pay it back at some stage. So you have that element of concern, that there won't be a problem with downvaluation by the lender.

The main point about this kind of deal is that if house prices go down you could get stuck. Is the mortgage interest only or old style repayment?

If it is interest only then you will still owe around £105K or so in 5 years time if the house is only worth £125K (not impossible - in our area 1988-93 values went down 20-25%) but will have to pay 20% of value to the builder if you sell (£25K) which makes a total of £130K and this doesn't allow for estate agents and legal costs of a sale. That puts you £5k+ in the red.

Not quite so bad if trad repayment because hopefully you would have paid off about £10K of the capital by then.

JMW77

I would avoid this ,i had friends who bought a house with this kind of scheme if house prices go up that 20% will cost you much more than you expect.

Also do you have to rent the 20% ?

wigan84

Firstly can i just say thanks for all your replies:beer:

"Is the deal that you get a mortgage for 75% of the price and that gets paid to the builder on completion?"

Yes that is correct.

"The builder lends you 20% interest free (or whatever - I don't know the specific terms of this 80/20 deal) but at some point you will have to repay the builder 20% of the then value of the property."

We have a 10 year period in which 20% of the THEN house value has to be paid back. If the prices drop, i owe bloorhomes 20% of the reduced value, and of course if house prices rise i owe bloorhomes 20% of the increased value.

"Is the mortgage interest only or old style repayment? "

My broker suggested a 5year fixed rate capital and interest payment mortgage with a 10% overpayment facility, of which we could pay £200-£300 a month extra. so we would be paying £556 plus the overpayment of £300 a month, thus reducing the capital to enable us to cope with the 20% hanging over our heads.


"Also do you have to rent the 20% ?"

The 20% is interest free and rent free for 10 years, and can be paid anytime between day 1 and year 10. but it is calculated on 20% of the house valuation at the time of repayment.




Can i just say. I have been looking into houses and mortgages for 4 days and my head is mush!!!! lol. but i enjoy working it all out and trying to figure out what is good/bad :j


awaiting your great replies!


Cheers

Richard_Webster

My broker suggested a 5year fixed rate capital and interest payment mortgage with a 10% overpayment facility, of which we could pay £200-£300 a month extra. so we would be paying £556 plus the overpayment of £300 a month, thus reducing the capital to enable us to cope with the 20% hanging over our heads.

Still a risk (but people who bought with 95% mortgages in the past took the same risk). If you can afford this monthly commitment, at least you are addressing the issue of getting the loan reduced so as to give you a buffer if prices go down.

Just need to make sure that your lender will agree the builder's valuation and accept the 5% gifted deposit.