Ztan's Shared Equity Story- MFW from the word GO

ztan

I have taken it upon myself to show that Shared Equity scheme's CAN work, and enlighten a few people about the realm of possibilities now available to First Time Buyers.

I am starting right at the beginning on my journey:

I'm Ztan :female: and my partner :male: and I have been living together for 19 months. We've been renting a flat via an informal arrangement- and we've been desperate to leave for ages! It's a listed building, with no heating, no double glazing and woodchip EVERYWHERE!

We have spent many hours chewing the possibility of getting a mortgage, getting a house and each time the conclusion has been: we'll never be able to afford it. End of story.
We moved in together, in the hope of saving up LOTS of money and making a start towards a deposit- then in April 2009 we both got made redundant. :mad:

Fast forward to now, and we've just put a deposit down and exchanged contracts on a new build coach house.

A while ago, my mother was considering buying a property- buy to let. She did some research and went to see a local development. She saw a nice place, and asked what her next steps were if she were interested. As a FTB my mother was told what her options were for a straight out purchase. Deposit of approx £27,000 just to get a mortgage. :eek:

Dead End

They then informed her however they offered a Shared Equity Scheme, which was available to FTB, and a mirror of the government's HomeBuy Direct scheme.

She was offered an illustration on an 80/20 split, mortgage of about £114,000, £6,000 deposit and mortgage repayments of less than £600 a month.

Lets be honest, she considered it very seriously, however as she'd just brought a shiny new car on finance, unless she could reduce her outgoings it was out of her reach.
End of the line for mother.

She then tells me and my partner about the scheme, and we go on down, view a few places and fall for a 2 bedroom coach house. We ask what they can offer us, both under 25, both FTB.

We get offered a £112,500 mortgage with a £7,500 deposit, mortgage payments of less than £570 a month. (35 year term):j

Sounding very appealing so far- considering we were potentially going to be renting somewhere for £600 a month. (Another winter in our current flat was a no no )

So we ask about the shared part, the rest of the price of the house- currently at £30,000 or 20%. It goes a little something like this:

We have 10 years to pay back their share. The first 5 years are interest free, and the interest is then 1% plus the increase in the RPI from the previous year. (So not too much) This is paid as a monthly payment to the developer until they receive their 20%.

There are the following options for "buying them out"

Staircasing: remortgaging periodically to increase the mortgage payment, and reducing the overall percentage owed to the developer. This is done on request, a valuation is carried out, the value of the 20% is established, and then you can agree to remortgage for a certain portion of that. (This may be limited to 10% minimum at a time, so 2 remortgage stages)

Sell up: Hope against hope that house prices rise enough that you could sell and make a "profit" or at least break even.. (haha)

OR

What we're planning to do:

Overpay on the mortgage by up to £6,000 a year, each year for the first 5 years. (Chucking the amount in an ISA and then moving to mortgage)
This means the mortgage would be approx £72,000 by year 6, and then remortgage for the additional 20%. (I.E keep the LTV as low as possible)

The 20% is fixed at 20%- not £30,000. So if house prices fall, and we buy out the developer, they get 20% of the reduced valuation or they get more if prices rise.



So- so far we see it this way:

• We get a nice shiny, insulated, heated coach house with a garden as soon as they've finished the carpets, and a small monthly mortgage payment (in comparison to rental) We then spend the next few years saving lots and effectively paying the developer the "deposit".
• Instead of renting for the next 5 years, and still attempting to save. This way the "rent" is actually taking chunks out of the mortgage and we're saving for the "deposit" all along the way.

A lot of people think it would be sensible to stay renting and try and save and then buy a house "outright" but I simply see this as a rejig of the usual method.

So, that's where we are now. Yesterday we legally exchanged contracts, and we're now awaiting completion on notice- as the house is in the FINAL stages of the build. We should be in very soon.

:beer:




Added benefits of using the scheme (and of being a FTB):

• Reduced solicitors fee for using nominated solicitor
• Use of independent mortgage advisor, with no fees to pay
• No stamp duty
• Free carpets
• Free turf

FYI- I've put this in MFW because my mission is to half the term of my mortgage and be mortgage free ASAP. Even though I'm starting a new right now!

SmlSave

Welcome to MFW

When do you move in?

It sounds like you've got everything sorted and an action plan to boot Good luck with your plan

ztan

Thanks SmlSave

The estimated date for completion is the 10/09, so I'm hoping we'll be in by the end of September. I'm dreading the move at the moment, although we are half packed already!

Off to check on the progress of the house again tonight- although we can't see inside, we do pop by 2-3 times a week and have a nosy at the progress.
We've made an impact with our developers already, as they've realised we're savvy and not letting them walk over us.

So far we managed to get a BT point put in next to the TV point for nothing (instead of £80!). Moaning does work

SmlSave

I'm sure the move will be fine

I take it you're on a ten day notice to complete - lots of waiting around and then all actions go!!!!!

ztan

It's either 10 or 14 days. As soon as they're finished and NHBC have signed then I think we're good to go!

I am very excited now, the thought of living in a flat with smooth, clean magnolia walls is extremely nice... Shame we're not in earlier though, and will have to wait for next Summer to enjoy our garden..

grey_eyes

Well done and good luck. We moved in to our Homebuy direct house in June and are loving it! The build quality is really good and the few 'snags' we have had have already been dealt with. From a financial point of view we are paying less than rent for a far superior home. Both my partner and I are on trainee salaries which will rise over the next few years so paying back the shared equty should not be a problem. We are loving the fact that we are no longer subject to a landlords whims and are in charge of our own destiny.

ztan

Wicked stuff grey eyes :beer:

It's nice to hear something positive from a similar scheme. Me and my partner have found most people very positive, however I have heard several doom and gloom stories on the net, which panicked me a while a go.

Muhasib

ztan, you seem to be a very good publicist for shared equity, the scheme that you have joined though is not a mirror of Homebuy Direct as the equity does not need to be paid off in 10 years with HBD.

Also if selling at a loss to the original price there are also differences to how the loss is attributed, basically the loss comes out of the developer/HCA share at first with HBD so more beneficial to the mortgage holder.

ztan

Okay well forgive me muhasib... I wasn't saying it's exactly the same, but similar.

Please, don't quote me on everything I say, it's not 100% accurate and is only an interpretation of what I have been offered. I am not a "publicist" just someone who thinks that it is a great opportunity, and people should be more open minded about the possibilities.

I'm a chuffed new home owner, who went down an alternative method and thinks it might benefit others. Simples

Oh and FYI:
The following is taken from the homebuy direct scheme website: (There's no mention of a 10 year deadline, but everything else is pretty much the same)

What is HomeBuy Direct?

This option offers equity loans towards the purchase of a new build home on selected developments.
How does it work?

You buy a minimum of 70% of the market value of a property. An equity loan of up to 30% is provided to assist your purchase. There are no payments on the loan for the first five years. After five years there is a fee of 1.75%, which increases annually in line with inflation. You will need to raise a mortgage to purchase through this scheme. You can also use any savings you may have to contribute as a deposit towards your share.
What are my options after buying through HomeBuy Direct?

You can buy additional shares at a later date until you own 100%. This is calculated on the current market value at the time that you purchase the additional shares.
If you wish to sell your property, the equity loan is repaid as a percentage of the market value at the time of sale.

originalmiscellany

to read your plans ztan

Having read your postings, sorry if you've said this and I've missed it, but what happens if interest rates go up - e.g. £570 pcm currently, but would you be okay if rates shot up to say 4% in 2 years time?
I assume you will be, due to overpaying but I just wanted to check you'd thought these options through...

golfiematt

sounds like a good oppurtunity for your circumstances, as long as youve read the small print then i cant see the harm in it, good luck with everything.