Help and advice on Mortgages/buying a house

pjgoober

This afternoon, my fiancee and I are going to have a look at a house. A couple of friends of ours just bought one of a development of new builds and it appears to be an absolute bargain. All we really know at this stage is that it is really cheap, there are only 2 left on the market, and that they are part of a "shared equity scheme" (i.e. you buy 75% of the house & effectively lease the other 25% - I think)

Having never really considered the possibility of buying a house in anything other than a "yeah that would be nice one day" sense, up until about 4 days ago, I don't know much, if anything about house buying.

One of the problems is, should we be interested, we may have to make a decision very very quickly.

Really, what I need to know is:

1) What does the shared equity thing mean in real terms? Should this effect our decision one way or another - I think it is the main reason it is so cheap, but is it false economy?

2) What are the chances (in the current market) of being able to get a 95% mortgage, on roughtly £90k? I realise this is probably an impossible question for someone on here to answer - but who should I be trying to get in touch with to find out (Bank? Mortgage broker? I think the house builder provides a financial advisor?)

Really, generally I'm just looking for any advice and guidence anyone can give?

spadoosh

Shared equity is good if affording a house conventionally is not possible. However what youll find is that your in there long term and will probably end up paying considerably more than a standard mortgage in the long run.

95% mortgage are extremely rare nowadays and tend to only be available by what they call ' vendor gifted deposit' which is in essences the seller paying some or all of your deposit. Youll probably find that the house builder will offer this as to sell th house, again not normally a 'good deal'

what youve got to bear in mind is that if youre getting a 95% mortgage there is an increased risk of you getting into negative equity and you almost certainly will not make money/profit on resell. So in essence you will be renting your own home. but at least you can call it your own.

Speak to mortgage advisors as they are the experts, a financial advisor will have many good attributes but the mortgage broker deals solely in mortgages.

CloudCuckooLand

pjgoober wrote: »

it appears to be an absolute bargain.

Having never really considered the possibility of buying a house in anything other than a "yeah that would be nice one day" sense, up until about 4 days ago, I don't know much, if anything about house buying.

What mortgage did your friends get ?

You may find some deals where the developer "gifts" 5% of the deposit, so you only have to find 5% - effectively a 95% mortgage, but combined with Shared Equity, which has few Lenders in the first place, you may find the deals evaporate or are expensive.

But don't forget the fees and costs involved...£3k on top of your deposit.

The issues around Shared Equity hinge around restrictions in the lease. You have to pay them for a revaluation. They get say over who can buy it. They probably won't let you rent it out, if you have to move and cannot sell it. You have to pay them when you want to buy the other 25%. etc Use the 'search' facility for more threads.

Then there is the issue of the small number of lenders, not all buyers can access those deals, so you are restricting your market.


More concerning, frankly, than Shared Equity is the part of your post where you admit you know next to nothing about house-buying, but have decided that this is a bargain...

Unless you have done a decent amount of reseach - using things like www.houseprices.co.uk to check what other similar properties have sold for - or Rightmove "Price Comparison" section, I wonder whether the judgement that it is a bargain has much thought behind it...

Too often threads on here say "I was 21, naive and rush headlong into buying it, OMG I wish I had not..."

If you are not geared up for a possible purchase, either mentally or financially, then even if you miss what is a genuine bargain, it would probably be safest to pause and reflect, get yourself ready in your own time and buy when it suits you, not because developers want to shift their stock.

"Act in haste, repent at leisure"...

pjgoober

Thanks for the replies.

I agree with you too some extent that my not knowing much about house buying is a massive concern. That's one of the reasons I'm asking here (and in various other places)

Whilst I've not actively considered buying a place, I do have a rough idea what property in the area is worth £95k (ish) for 75% of a 3 bed house is cheap compared to similar property in the area - not massively cheaper (i.e. there must be something wrong with it), but definitely cheap.

I could do with some more advice on the shared equity thing, depending on who you ask there seem to be wildly varying views - what kinds of questions should I be asking the FA/Broker etc to make sure I'm not getting ripped off, or going to end up in problems further down the line?

I believe (although I don't know the exact details) that my friends have to put down a £5k deposit (5%) and are paying roughly £500/month repayments over 30 years.

I have no idea about the detailed terms etc.

One of the reasons it appeals is that £500 is not significantly more than my rent on a crappy 2 bed house in a horrible area. So even if it's not a great investment, it's a better deal than throwing it away on rent? No?

CloudCuckooLand

Having a 30 year mortgage means the majority of money you pay will go towards interest, which is effectively renting...

House price predictions range between +2% and -10% for 2011...your 5% deposit could very quickly disappear - leaving you unable to remortgage away from your lender. As spadoosh says, then it becomes just like renting...

One factor I forgot in my list, was the "100% ownership" they will likely make a big thing of, as though the other 25% is just a mere trifle. If you have only a 5% deposit for 75% of the house, how long would it take you to get a 10% deposit of 100% of the house, or something bigger, when you decide to start a family? You only get to take 75% of any profit with you to the next house, after all...despite "owning 100%" and having to pay for 100% of the maintenance costs...

Have you researched your credit history, to make sure it is squeeky clean, as it will need to be to get a 95% mortgage ?

An FA/Broker might not care much about the Shared Equity side of things. They want to find you a decent mortgage and sell it to you. And there are so many schemes around that they may not be able to comment in much detail anyway.

Get the detailed terms - ask for a copy of the scheme details. Read the small print.

pjgoober

CloudCuckooLand wrote: »

Have you researched your credit history, to make sure it is squeeky clean, as it will need to be to get a 95% mortgage ?

How would I do this? What would stop my credit history being squeeky clean? Is there any way to find out in advance, whether I am likely to be able to get a mortgage or not? Can I trust the advice of the FA if they tell me that I would be able to?

pjgoober

I've found the terms of the shared equity, but cannot post links.

It's Barratt homes, shared equity scheme - which you can find easily enough on their website.

Any advice on whether this is a good deal, bad deal - something to be avoided at all costs etc??

CloudCuckooLand

Plenty of reading up to do;

http://www.moneysavingexpert.com/loans/credit-rating-credit-score

http://www.moneysavingexpert.com/mortgages/

http://www.moneysavingexpert.com/mortgages/mortgage-guide

Visit the developers website, they may have an outline of how the scheme works. edit, crossed with yours.

FA/Brokers vary in quality. Even the good ones get caught out by sudden changes to Lender's criteria. Lenders will issue an "agreement in principle" then decline the application on fuller investigation. Some threads here indicate supposedly "fully approved" mortgages being pulled by Lenders who have a change of mind. So, there are no guarantees.

Peter_L

It's a good deal if this is the only way you have of getting on to the property ladder, it's a bad deal as you will be very limited on choices of lender so therefore be paying more in the long run.

If it sounds too good to be true then usually it is. Builders are offering all sorts of 'crazy sounding' deals at the moment but remember, they only have one interest at heart - theirs ! They are trying to shift their 'stock' as like any other business, it is costing them in the long run to keep as stock, which ties up their capital and ultimately, profits (in recession, small profit is better than no profit !)

adwat

House prices are heading south for the next several years, no-one really disputes this - lenders are wanting 20% deposits for FTB, so they acknowledge this fact. I would recommend that you not buy for a few years until you've got a good deposit which will enable you to buy a house that you would be happy to live in for a long time for example to start a family in. If you buy now you will see your house decrease in value for a number of years and might be unable to move to a bigger place when you need to because of a growing family.

Not wanting to be doom and gloom (honest!) but it's only my opinion, you need to decide the benefits of buying now or waiting.

CloudCuckooLand

http://www.barratthomes.co.uk/Offers/Shared-Equity/

"Can I buy a property to rent out?
Sorry – the Barratt Homes Shared Equity scheme is only available for those buying a home as a place to live."


In "hardship", they may be more flexible, but most likely you cannot rent it out, if say your job moves suddenly and the house won't sell.

You have 10 years to find the 25%. Its taken you how long to raise 5% ? And that's while renting something for cheaper than the mortgage... Multiple by 5...likely?


http://www.barratthomes.co.uk/Offers/Shared-Equity/Shared-Equity-Terms-and-Conditions/

"10 You will not be liable to pay back any money made on the basis of home improvements (e.g. the addition of a conservatory or loft extension"

So, don't go spending a fortune on a "bling" kitchen when its needs replacing, you won't get that back out of any valuation.


You get the idea, I am picking out the negatives! Personally, I just don't agree with a scheme that ties you not only to a 30 year mortgage, but also an extra 10 years worth of saving for the other 25%...

These shysters want to keep their stock overpriced, so you have to get a 30 year mortgage, and find another 25% while trying to start a family, move somewhere bigger etc...

Barrat win all ways. If we have 10 years of price drops, you might get the 25% nice and cheap, but they know that isn't likely.