Homebuy - no deposit?

poppy10_2

vicshippers wrote: »

after 5 years I will have equity.

Will you? How do you know?

alexnotts

Can you explain how this is a scam poppy please. You've said shared ownership is a scam multiple times with no apparent reason.

In any case i repeat again, the Home Buy Direct scheme is not shared ownership. You appear to know nothing about it.

Would be nice if there was an option to take away one of your 'thanks' as well as add one.

poppy10_2

alexnotts wrote: »

Can you explain how this is a scam poppy please. You've said shared ownership is a scam multiple times with no apparent reason.

In any case i repeat again, the Home Buy Direct scheme is not shared ownership. You appear to know nothing about it.

Under Homebuy Direct, although you technically own 100% of the property, you take out an equity loan for 30% of the property's value - split between the government and the housebuilder. This is where the first scam comes in. Without the assistance of this scheme the housebuilders would be forced to drop their prices in order to get any sales; Homebuy Direct allows them to keep their prices overinflated and simply loan you the money to buy it from themselves. So if you want to buy a £100,000 home, they lend you £15,000 which you immediately pay back to them. It would be much better for the buyer (and for the market generally) if the government were not acting to prop up house prices in this way, and just allowed them to fall to a naturally affordable level, which would open up home ownership to so many people for whom house prices are currently unaffordable and out of reach.

Secondly when you sell the house you have to pay back 30% of the property's value at that time. You only need to look back at the Shared Appreciation Mortgages taken out in the 1990s to see what kind of disaster this can lead to. Say for example, house prices double over the next ten years. Your £100,000 house is now worth £200,000. You have to pay back £60,000, more than half your equity.

On the other hand, what if prices fall? Say you need to sell up in 3 years time, and prices have fallen by 30% over that period. Your £100,000 house (on which you took out a £70,000 mortgage) has now fallen in value to £70,000. When you sell the house you have to repay your mortgage of £70,000, and also repay your equity loan (30% of the sale price = £21,000). Where do you get that £21,000 from?

Thirdly - for the taxpayer at large, they are having to provide interest-free loans for 5 years, the proceeds of which goes straight into the pockets of the housebuilders. No other business has this kind of state subsidy.

I could go on, if you wanted me to.:cool:

gemma7wayne

Poppy i dont think you have read the terms correctly if the house value drops and you have to sell you firstly pay off the mortgage and anything left is split between the government and the property developer you do not have to still pay off what you borrowed this is the risk they are taking.

But if you were in that situation would mean you would have nothing left to buy another house so would be back in the renting situation.

SelbyJay_2

Poppy, your general comments are of no use what so ever. I accept your comments about the homebuy scheme and accept that shared ownership will not work for eveyone, but saying it is scam is utter bull poo!

I bought shared ownership and it was the best thing for me to own my own home. You do need to make sure the scheme you are getting involved with is properly run and audited, but it is certainly not a scam as you so often seem to think it is.

vicshippers

In summary Poppy, is what you're saying - the system works if house prices rise, and if they fall - you're in the same situation as when you started?

In the example you gave (£100k house increases to £200k) - at the start you have a £70000 mortgage and end up with £130k equity. OK you end up paying more back to the developer/HA - but surely that is only fair. As you say - the taxpayer shouldn't have to subsidise the scheme completely, the rising house prices is like their interest payment.

sturgeon

vicshippers wrote: »

Poppy10 - Shared ownership really isn't a scam...it's niave to generalise so broadly..

Correct. This user likes to browse this forum, probably by searching for 'shared ownership' and make the same unfounded ridiculous comment about this being a scam wherever possible. It's complete rubbish.

alexnotts

poppy10 wrote: »

Under Homebuy Direct, although you technically own 100% of the property, you take out an equity loan for 30% of the property's value - split between the government and the housebuilder. This is where the first scam comes in. Without the assistance of this scheme the housebuilders would be forced to drop their prices in order to get any sales; Homebuy Direct allows them to keep their prices overinflated and simply loan you the money to buy it from themselves. So if you want to buy a £100,000 home, they lend you £15,000 which you immediately pay back to them. It would be much better for the buyer (and for the market generally) if the government were not acting to prop up house prices in this way, and just allowed them to fall to a naturally affordable level, which would open up home ownership to so many people for whom house prices are currently unaffordable and out of reach.

In most, if not all Home Buy schemes, only a percentage of the development is sold via HomeBuy Direct. Most are sold on the open market. Therefore any market distortion is minimised. It is correct that housebuilders may inflate their prices, but overall it is a good tool for people like me who have little deposit.

Secondly when you sell the house you have to pay back 30% of the property's value at that time. You only need to look back at the taken out in the 1990s to see what kind of disaster this can lead to. Say for example, house prices double over the next ten years. Your £100,000 house is now worth £200,000. You have to pay back £60,000, more than half your equity.

On the other hand, what if prices fall? Say you need to sell up in 3 years time, and prices have fallen by 30% over that period. Your £100,000 house (on which you took out a £70,000 mortgage) has now fallen in value to £70,000. When you sell the house you have to repay your mortgage of £70,000, and also repay your equity loan (30% of the sale price = £21,000). Where do you get that £21,000 from?

Of course house price falls will cause problems, but this is no different to any house!

In fact you are protected slightly more from house price falls on this scheme because you only paid for 70% of the house! This is of course assuming its a repayment mortgage that is taken out, if so then in your example £70k wouldnt need to be repaid... It would be more like a 9-10k shortfall.

If the same 30% decrease had happened on the full mortgage of 100k after three years you would be talking about a 14-15k shortfall!

I only astarted learning about mortgages last week, but can see that you are talking crackers.

Thirdly - for the taxpayer at large, they are having to provide interest-free loans for 5 years, the proceeds of which goes straight into the pockets of the housebuilders. No other business has this kind of state subsidy.

Its a mechanism for first time buyers and key workers... Maybe you are so free market you cant quite grasp that. If you hadnt noticed, completely free markets don't work at all, as we have seen in this recession. Yes, the loans are interest free and will have a cost in the case of house price falls and thats the price society takes.

I could go on, if you wanted me to.:cool:

Please do.

Monkey_Speaks

I'm sensing a lot of hostility being directed towards Poppy here. I have to say, I'm leaning more towards her position than the majority stance. My reasons are as follows:

Firstly, the equity share is only an equity share if the value of the property goes up. If the value drops, then the loan is just a loan. Or, 30% becomes £40,000 - or whatever the numerical figure is.

Secondly, the home I was trying to buy was overpriced to the tune of £20,000. That's what the bank told us after carrying out their own valuation. They said there was not sufficient 'market evidence' to justify the £175,000 price tag. I returned to the developers and said show me the market evidence or lower the price. They asked us to 'meet them halfway' and I refused, so they lowered the price.

Thirdly, reading the contract was like wading through treacle. Not only was the document unweildy, but many of the documents were out of date, generic office copies not tailored to the specific development (Uber, at Walthamstow). My solicitor had serious concerns. With almost daily telephone contact, the sellors (Higgins Homes) were pressurising us to sign the contract anyway. I told them, I would not sign the contract until I was happy with it. This may be an isolated case, but I believe that many first time buyers enter the market rather naively and leave themselves open to this kind of abuse.

Forthly, if you sign up to an equity loan scheme, the likelihood is that the sellors will recommend their own solicitors and financial advisors. The financial advisors, in turn, will offer you mortgages from an extremely limited pool. For example, I was offered a 5 year fixed rate at 5.99%. By myself, I was able to secure a 2 year fixed rate at 3.14%. I also used my own solicitor, which is how I came to find out so much about the contract (see above). Is there not an inherent conflict of interest in using the solicitors that the sellor recommends?

Fithly (and this is getting boring), like casinos, the only people garunteed to win from these schemes are the developers, the financial advisors, the solicitors, the mortgage providers - the men in grey suits. First time buyers may be offered a start on the 'property ladder', but don't be fooled into believing that the motives are purely alturistic.

If there is any way you can secure your own deposit - steer clear of these schemes!!!

Monkey_Speaks

alexnotts wrote: »

In fact you are protected slightly more from house price falls on this scheme because you only paid for 70% of the house! This is of course assuming its a repayment mortgage that is taken out, if so then in your example £70k wouldnt need to be repaid... It would be more like a 9-10k shortfall.

If the same 30% decrease had happened on the full mortgage of 100k after three years you would be talking about a 14-15k shortfall!

I only astarted learning about mortgages last week, but can see that you are talking crackers.

I feel the need to stress, that if the worst were to come to the worst and the bank was forced to repossess the home and sell it on, you, as the buyer, are only entitled to whatever remains AFTER the bank and the government have recouperated their share.