FirstBuy Scheme - Am I understanding right?

AJ85

Hi, seached for the FirstBuy scheme on the forum but could only find an old thread when the scheme was first being announced

I've seen a property on the scheme in my area.. £150,000.

Government put in 20% so give £30,000
I'd put in approx 6.5% personal deposit towards to ensure my mortgage / deposit ratio is less than 75% for a better mortgage rate.

Question really I have is:

Years 1-5 - interest free
Year 6 - 1.75% on any outstanding amount from the initial loan
Year 7+ - charged at 1% above RPI for the respective year

It seems a little too good to be true to me so I'm wondering what the catch is? If and where there is one?

I could pay back the £30,000 in 8 years from my calcs (which includes the interest etc). Is it really as straightforward as it appears?

Thanks for any help

poppy10_2

AJ85 wrote: »

It seems a little too good to be true to me so I'm wondering what the catch is? If and where there is one?

The amount you have to pay back in 8 years is not necessarily £30,000. It's 20% of the value of the house at the time that you sell it or pay off the equity loan. If house prices have risen you could end up paying back considerably more than £30k. It's essentially a type of shared appreciation mortgage, which is best avoided.

Because FirstBuy assistance is through an equity loan, the amount required to increase your equity share will be dependent on the total value of the property at the time you want to redeem part of your equity loan sometimes known as ‘staircasing’ or repay in full. The amount you need to do this will increase if your home increases in value and decrease if its value falls

In addition, the housebuilder has probably inflated the asking price for the property by the amount the government is contributing, so you will be overpaying for the property

AJ85

Oh I see.. so 2 key points there really, pay off within the 5 years or face real risk of additional costs and beware original cost of property could be higher than an equivalent property not in the scheme. I'll need to do some research then on similar houses in the area.

Does anybody else have any comments to contribute on this scheme at all?

Regards

hmd1987

I am interested in this scheme also, but the only thing that worries me is the want to pay back the loan asap..would it be possible to remortgage in say 5 years, and use money from that to pay back the loan? How would that work?

I'm getting quite confident in my understanding of the initial mortgage process, but still quite confused how remortgaging works

hmd1987

I would personally rather not go down the route of these schemes...but considering you now need like 14k deposit, then 2k fees on top of that...its quite a bit of money considering what you would need if you went down the scheme route

Think I might have to read up more on remortgaging and how it works, because I really don't understand it - But it looks like it might be a possibility

thankyou

wymondham

ExpertFinancial wrote: »

be aware there are now some 95% mortgages available, so the deposit requriement may not be as high as you think.

With regard to these schemes, I used shared equity when I bought my first house 10 years ago - and now I reckon at least 25% of the mortgage business I write is for people buying shared ownership or shared equity. It's certainly an excellent route onto the housing ladder if you are struggling with an outright purchase.

Remortgaging is very simple by the way - much easier when there is no house purchase involved

are you a mortgage broker?

hmd1987

I'd rather not have a 95% mortgage because of the interest rates - we would have to have help from parents to buy a house not on the scheme, purely for the legal fees and furniture

I suppose if you can get the house at the right price...then these shared equity schemes aren't all that bad really

AJ85

Thanks for the reply.

I've approx 15k saved at the moment in time so if I was to go for a cheaper house that isn't on the scheme then I suppose it might be more beneficial to me.. i.e less risk of accruing additional debt unnecessarily.

That said, I'll still go and have a look at this property tomorrow as the idea that it's brand new appeals to me.

geoffky

lambs to the slaughter...