Homebuy direct staircasing help :S

Ninnut85

Hey guys,

Me and my partner are also currently going through the HBD scheme.
Today I looked further into the "staircasing" where you can pay back the equity loan.
Has anyone else looked into this as I believe I have found the downside "catch" to the HBD scheme if my understanding of it is correct.

By the end of 25 years you have to have paid back the percent loan you were first given, be it 30%, 20%, etc.
It looks like there are 2 ways of doing this, one way is to sell your home and give them their percent owed back to them via the sale of your home. Sounds good but if your house cost you £150,000 and has gone up to say £200,000 after 25 years then you will have to give them £60,000 upon the sale of your home (if you had a 30% loan). Now, no one knows exactly how the market will be in 25 years times but I’m guessing £140,000 won't get you much and leave you a bit stuck when trying to find somewhere else to live. This is what seems to be the first catch.

The second way to pay off the loan is via "Stair casing." Now this is where I may have the wrong end of the stick but this is how I understand it works.

Your first staircase payment has to be a minimum of 10% of the current value of your home. So if your home currently is worth £150,000 you have to find £15,000 from somewhere in order to pay back 10% of the equity share (this is on top of paying your mortgage as well). How is anybody using this scheme going to be able to find this kind of money on top of a mortgage?
If somehow you are able to find that kind of money you can then pay back in 5% chunks. So you would then need to pay back four more 5% chunks of your total homes value.
Your total loan would have been £45,000 at 30% on a £150,000 home.
Assuming you can find £15,000 you now owe £30,000 which is the remaining 20%.
Four 5% chunks of £150,000 is £7500 each finally bringing your total up to £30,000 and paying off your loan.
All this is assuming your house value stayed exactly the same (which is highly unlikely I know). So if we assume the house goes up in value all these numbers will be increased and the longer your take to pay back the loan the more your house will likely increase by and the more than % chunks are going to cost you.

I don't know about your guys but I’m now having serious doubts about this scheme.
How is anyone who is using this scheme because they don't have the means to save a deposit supposed to obtain 10% of their house value whilst paying a mortgage?!

Seems to be unless you are lucky enough to come into some money big time you are simply buying the house on the understanding you are going to have to sell it within 25 years in order to pay the loan off

Any help will be great appcreciated

chodges84

A few people have mentioned this on the froum in the past and it is a VERY LARGE downside.

the Homebuy scheme is nowhere near as good a deal as they make out - as you are finding out.

It will help you get on the first rung of the 'ladder', but you will have a very hard time moving up to the next as you will still need to find large sums of money. Additionally if you wait until the end of the 25 years you will have the 30% equity to pay + 20 years of Interest on top as they are only interest free for 5 years.

Me and my G/F looked at this scheme through a local builder but soon discarded it as it is not a very good deal at all.

You would be better off buying a slightly smaller house you can afford without 'shared equity' than buying a new build (which are usually overpriced anyway) on the homebuy scheme.

bingibongi

All part of NuLabours spin - the devil is always in the detail but they never let that get in the way of sound bite headlines in their futile attempt to win over voters.

ElmoP

First MSE post.

My now wife and I went through this process in 2003. We bought a flat for £145K, made up from £120K of mortgage and £25K of homebuy loan. We were both early in our teaching and civil service careers and were able to extend the mortgage to take care of the outstanding balance in 2005 after a couple of pay rises and promotions.

The property is now worth in the region of £200k and we're looking to move on to a house nearby.

It worked really well for us. Don't know what the issue is...

Ninnut85

ElmoP wrote: »

First MSE post.

My now wife and I went through this process in 2003. We bought a flat for £145K, made up from £120K of mortgage and £25K of homebuy loan. We were both early in our teaching and civil service careers and were able to extend the mortgage to take care of the outstanding balance in 2005 after a couple of pay rises and promotions.

The property is now worth in the region of £200k and we're looking to move on to a house nearby.

It worked really well for us. Don't know what the issue is...

It's quite nice to hear the scheme has worked for someone so it can't all be bad.
My only concern is what if in x amount of years you approach your bank to ask for a remortgage/extention to try and pay the loan off that way and they say no...?

Isn't this basically the same as the bank lending 100% of the house value? No bank is going to do that with the current climate are they?

SelbyJay_2

I guess with the HBD scheme you will have to try and save alongside making your mortgage payments in order to have some money aside for when you can start buying bigger shares. You will get pay rises during the time you own the property, so that might make it easier to save.

Have you looked into Shared Ownership? This works out a lot better as you are renting the share that you dont own and if you cant afford to buy that share, you just continue renting. It at least gets rid of the worry of having to buy a bigger share (pay back the equity loan) within a certain time frame. You can "staircase" at your own pace then.

Ninnut85

SelbyJay wrote: »

I guess with the HBD scheme you will have to try and save alongside making your mortgage payments in order to have some money aside for when you can start buying bigger shares. You will get pay rises during the time you own the property, so that might make it easier to save.

Have you looked into Shared Ownership? This works out a lot better as you are renting the share that you dont own and if you cant afford to buy that share, you just continue renting. It at least gets rid of the worry of having to buy a bigger share (pay back the equity loan) within a certain time frame. You can "staircase" at your own pace then.

Yeah, it's the saving part along side a mortgage that I will struggle with because it's quite a big amount.

I've only briefly looked in shared ownership so will look into that with more detail.
My other worry there though is how much the rent will be on top of a mortgage?

tb1105

we are looking at SO, £96,000 for 50% share on 3 bed hose and rent is jut over £200 a month so about £700 a month all in. You can staircase to buy more of your home but I thought you might be able to do it by increasing your mortgage??

Ninnut85

tb1105 wrote: »

we are looking at SO, £96,000 for 50% share on 3 bed hose and rent is jut over £200 a month so about £700 a month all in. You can staircase to buy more of your home but I thought you might be able to do it by increasing your mortgage??

This is my thoughts with HBD as well.
Surely you can extend your mortgage after being in the home for a few years and use that to pay off either shares (SO) or the loan (HBD)?
I'm 24 and my partner is 20 so do have plenty of working time left to pay mortgage repayments.

Anyone know?

ElmoP

Ninnut85 wrote: »

My only concern is what if in x amount of years you approach your bank to ask for a remortgage/extention to try and pay the loan off that way and they say no...?

Isn't this basically the same as the bank lending 100% of the house value? No bank is going to do that with the current climate are they?

As a couple we found ourselves better off by about £15k a year, so the multiple we required was achievable. But if the bank says no, then they say no. It'll be a case of waiting until you're earning enough for them to say yes. In the meantime you still get to live in your house.

It won't be the same as them loaning 100% as you would have paid off some capital and (hopefully) the property would have appreciated a bit, so there's an asset there.

SelbyJay_2

My combined rent & mortgage is less than if i had a mortgage for the full value of my home.

I would recommend doing SO with a housing assoc rather than a developer if possible as they're regulated and have to account for what their spending your rent money on.