Using 25% loan from builder as deposit

littlened

I've a friend who's got this idea that he and his mrs are going to sell their ex council house in march and buy a brand spanking new one.

The idea is they want to use the 25% loan that the builder does as the deposit for the house.

My question is, can you do this?

poppysarah

Have they got equity in the house they are selling?

It'll depend on the ratios of equity:loan:mortgage - but the question should be, should you use a loan and a mortgage to afford a house

littlened

poppysarah wrote: »

Have they got equity in the house they are selling?

It'll depend on the ratios of equity:loan:mortgage - but the question should be, should you use a loan and a mortgage to afford a house

They bought their house at the end of 2007 for £77k. They've had it valued today at between £82k and £85k, however I'm not sure if the agent is giving them a high valuation to get their custom. They've done little/nothing to the house to warrant an increase of up to £8k on the value of their house during a time of recession.

I believe they have around £73k outstanding on their current mortgage, having paid a £4k deposit when they bought it.

I've tried explaining things to them, but there response is that the mortgage on a new house is 'only' £50 per month more than their current mortgage, and they'd 'only' need to put away £150 per month for 10 years to pay off the 25% loan. That's £200 per month worse off they'll be! But they just don't see it.

Cannon_Fodder

If they got a Right-to-Buy discount from the council, then the valuation might be reasonable.

Some builders are offering 75%/25% schemes. To get a no deposit mortgage, you will have to use their recommended Lender, probably.
i.e.
http://www.lagan-homes.com/news/lagan-homes-help-buyers-at-wixams.aspx

PasturesNew

Cannon_Fodder wrote: »

If they got a Right-to-Buy discount from the council, then the valuation might be reasonable.

But if it was a RTB, they only bought it 2 years ago, so they'd have to pay back any discount they got.

OP: More details are really needed for a fuller answer.

My gut feeling is: this will come to nothing, your friend will discover they were ill-informed or just weren't in possession of the full facts. I bet they end up not doing it.

littlened

PasturesNew wrote: »

But if it was a RTB, they only bought it 2 years ago, so they'd have to pay back any discount they got.

OP: More details are really needed for a fuller answer.

My gut feeling is: this will come to nothing, your friend will discover they were ill-informed or just weren't in possession of the full facts. I bet they end up not doing it.

The existing property is ex council, but it was the people before them that purchased it from the council.

We've tried explaining things to them, but they think they'll get £85k for their house, they think they'll make a tidy little profit, they think it'll sell quick, they think they'll get a mortgage on a brand new house based on their £13k a year basic wages, they think a lender will allow them to use the builders loan as their deposit and they think they'll be problem free for the rest of their lives.

Too much thinking going on.

I think the problem with it all for us is that we've always acted fairly sensibly when buy property. We bought our first 2 bed terraced house back in 2005 for £47k. We bought our existing home for £82k back in march this year (4 bed detached with a garage - repossession) which we put down a 20% deposit.

We still have our old house because it was so damn cheap anyway, and it's got tenants in it, and our existing home has been valued at between £110-115k (though we know its only worth what someone is willing to pay).

As you can see, we've made some decent decisions, but we really struggled to get a mortgage for our existing property, it took us almost 3 month to sort it all out, and the fact our friends think it's just so easy annoys us.

Personally I think it's a phase, they're telling everyone about it at the minute.

Cannon_Fodder

Forgot about that. Thanks!


assuming this applies; http://www.communities.gov.uk/documents/housing/pdf/138178.pdf

Repayment of discount
"If you have bought your home under the Right to Buy,
you can sell it whenever you like. But if you wish to sell
within the discount repayment period specified
below you will usually have to repay some or all of
the discount.
If you sell within the first year of purchase, the whole
discount will have to be repaid. Four fifths must be repaid
if you sell in the second year, three fifths in the third year,
two fifths in the fourth year and one fifth in the fifth year.
After 5 years, you can sell without repaying any discount.
In addition, the amount of discount to be repaid if
you sell within 5 years of purchase will be a
percentage of the resale value of the property,
disregarding the value of any improvements. For
example, if your home was valued at £100,000 at the
time you bought it from your landlord, and you received
a discount of £20,000, that means that your discount
was 20 per cent.
If your home is valued at £150,000 when you wish to
sell it, and you want to sell within the second year of
purchase, you will have to repay £150,000 x 20 per cent

discount x 4/5 i.e. £24,000."



...3/5ths by the looks of it.

3/5ths of the new value looks good on paper, better than finding 3/5ths if prices had gone up...but they still have to find £9k in cash from somewhere.

I agree, its likely to be one of those "nice idea, doesn't add up when they look into it" times...

Or something completely out of the blue, like an inheritance, has allowed their conversion to nouveau riche...


edit; and all the RTB stuff doesn't apply now, on reading latest post...hey ho.