Looking at homebuy / first morgage

Snowman001

Hi All,

The last year i have been thinking i need to get things together and get my own place. Its never really been something i ever thought i would do because i dont have any parents to help me out or a decent job.

But the last two years i have have earned about 28/29 k and so thought it should be possibly with the homebuy scheme i have read about.

I currently have 5k in savings and no overdraft or credit cards.

I have just had a pay rise and earn 22k base with 8k commission. The previous 28/9k i have earned was on a 20k base with 5k commission so i dont expect to earn any less in the next few years.

I have been looking at homebuy properties as i would never be able to own my own full flat. Looking at the placed on offer i can could gte a two bed flat for 66k (40%) equity or somewhere along those lines. I feel it would be better that renting my own place even though i woulds only own half.

I have not called a morgage advisor as i am just unsure of what i want to do is unrealist or not as i know my deposit is tiny.

I wanted to get thoughts on where i need to be and any downsides of homebuy ?

Your thoughts are welcome.....

Thanks

kingstreet

This is shared equity. You buy the whole of the property and a developer or a registered social landlord (RSL) lends you the extra you need on top of your mortgage and deposit. When you sell, you're selling all your home, not just a portion of it.

Upside - you get a bigger property than you would otherwise be able to afford, or you can buy now without having to wait longer to save a deposit.

The bit you borrow from the developer or RSL has two conditions attached. Firstly, you'll have to repay it at a fixed point in the future, or when you sell, if earlier. You'll have to start paying interest on it at that fixed point if you don't pay it off.

Normally, this is expressed as percentage of the value of your home. So when you repay, if it started as 50%, it will still be 50%, but of the increased value if your home is worth more. However, if the price has fallen, you may still have to pay back what you borrowed in £ terms, so you lose on the swings and on the roundabouts too.

Downside - possible interest payments on "equity loan" and having to repay it when not convenient. Plus, you could have to pay more if prices have risen, or fallen.

Last, you need to be aware, if you are buying a new-build, prices are often inflated and your home will probably be worth less the moment you move in. Check prices of similar second hand properties to see the difference.

brit1234

Homebuy is a sub prime time bomb best to avoid.

Look at all the previous posts on the dangers of shared equity properties. There was that horror story on the hose price forum today on them.

You buy one of these overvalued scam properties today you will be in massive negative equity down the road, then having to pay an extra 25-30% mortgage as the loan runs out and at far higher interest rates.

superted187

Hi Snowman001

I'm in a similar situation as you - I'm a would be first time buyer, but I do not have the current ability to put down between 20 and 40% for a deposit.

I used to leap at these shared equity and ownership schemes, but I'm now happy(ish) to continue renting. I would strongly advise that you wait before involving yourself in a potentially difficult and restrictive housing arrangement. Remember - houses are currently overpriced in the UK, and the market is very volatile at the moment.

The banks know this - this is why most of them demand that you put down at least 20% of the property's value as a deposit, so if the value of the property falls by 20%, you've taken the hit, not them.

Anecdotally, 2 of my colleagues bought their first and current houses using these schemes. One of them is in the process of selling to move back into his mums because he's very concerned about the direction of house prices. If they fall much further, he'll be massively out of pocket when he sells, as the shared equity scheme will mean that he has to pay for the remaining value of the property as of the time he bought it. It would have been a good move if prices had gone up on average, but they haven't.

Here's an example of this happening:
http://www.walesonline.co.uk/cardiffonline/cardiff-news/2011/03/24/couple-s-bellway-property-dream-now-a-nightmare-91466-28393030/

The other colleague calculated that in 2 years of ownership, he's only paid about £1000 of the mortgage down.

My short answer: Just be patient and wait. Load up your ISA as much as you can. Try to enjoy renting: It can be a mugs game I know (landlords stealing deposits, etc), but its flexible, and if you don't like the place anymore, its a bit easier to move than if you were a homeowner. The greater a deposit you have, the more power you have.