HELP! First Time buyer - Homebuy Direct 100% Mortgage mind-field

slavinder

My Partner and i are currently looking at buying our own property. We are planning for a family so want a property to buy.
We live in the South East, so as you're all aware, house prices are astronomical:eek:
We are currently looking into FIRSTBUY - one of the "affordable" housing schemes .bovishomes.co.uk Downloads FirstBuy-Buyers-Guide. please look - i cant post links
this is the deal the property is worth 207k for a 3 bed. As my partner is a teacher she is eligible for a mortgage from the Teachers Building Soc, they currently have a new deal: they pay your deposit and you repay as part of your mortgage, so effectivly a 100% mortgage here is a link of the details teachersbs.co.uk/mortgages/firstbuythis is completely uncharted territory; we would be paying out 925 a month -is this reasonable? There is no way we can come up with a mortgage without years of saving and we want kids in the next year, our thoughts are its better to buy than rent - but its a scary move...
Thanks for reading - comments would be gratefully received

jimjames

slavinder wrote: »

There is no way we can come up with a mortgage without years of saving and we want kids in the next year, our thoughts are its better to buy than rent - but its a scary move...
Thanks for reading - comments would be gratefully received

Could you not move stay where you are and save for the mortgage? It might sound tough but unfortunately its what everyone had to do before the days of 100% loans from the likes of Northern Rock.

Sorry if that sounds harsh but having a 100% mortgage is a very risky option if prices don't increase for a long time and renting would then have seemed a much better option.

I don't know where in the SE you are but in Kent you are looking at just over £100k for a 2 bed place, does it have to be £207K as your first mortgage?

kingstreet

Do you qualify?

ie Under £60k household income and buying in BH or DT postal areas?

Have you been through the Homebuy application process yet?

£925 is a lot to be paying out if you are earning less then £60k between you and it is going to look even bigger if you are planning to start a family in the next year. The second charge is only interest free for five years then you have to start to pay that back. What happens if you decide you want another child just at the wrong time?

Final worry. With no deposit and the premium you pay for a newbuild property you will immediately be in negative equity. Needing to sell the property quickly for an unforeseen reason could leave you financially ruined.

slavinder

207! not 270!! - Brighton - a 2 bed is around 200k - saving 20k would take years in that time we would have paid 30k in rent

slavinder

kingstreet wrote: »

Do you qualify?

ie Under £60k household income and buying in BH or DT postal areas?

Have you been through the Homebuy application process yet?

£925 is a lot to be paying out if you are earning less then £60k between you and it is going to look even bigger if you are planning to start a family in the next year. The second charge is only interest free for five years then you have to start to pay that back. What happens if you decide you want another child just at the wrong time?

Final worry. With no deposit and the premium you pay for a newbuild property you will immediately be in negative equity. Needing to sell the property quickly for an unforeseen reason could leave you financially ruined.

Yes, we do qualify we earn 50k between us, we would be looking to sell at 5 year mark, if in that time the value decreases the govnmt absorb it

kingstreet

Going back to my earlier question, are you buying in Bournemouth or Dorchester as the TBS deal is only available in those postal areas?

http://www.teachersbs.co.uk/mortgages/firstbuy.aspx

We can offer eligible applicants a mortgage for up to 80% of the purchase price, subject to approval, meaning that a deposit will not be needed if the equity loan provided through the scheme is the maximum 20%.

Please note that this mortgage is currently available to educational professionals and people purchasing or remortgaging in the BH and DT postal areas.

I'm assuming you are.

Having run this case through Mortgage Brain, I'm a bit more concerned than I was before.

You appear to be using a 35 year term to keep the monthly payments at £925 per month?

By doing so, you are reducing the amount of capital you are repaying to what I believe is a dangerous level to get the affordability which is obviously important.

You will borrow £165,600. By the end of year 5, your mortgage will have fallen by only £9,000 to £156,517. If there is no increase in the value of the property, you'll still have the £40k loan to pay off but only have equity of £9k. It's debatable whether you'd be able to move. Remortgaging would be impossible, so you'd have to find extra money to pay the interest on the loan from then onwards. Obviously the situation would be even worse if property values fall as then you'd have no equity at all, despite the enormous monthly payments and you'd still have to pay the interest on the loan as well.

I would counsel you against a "buy at all costs" approach. To summarise;-

- starting a family soon is de-stabilising income/expenditure
- very long term equals little repaid in early years
- premium price for newbuild means instant negative equity
- ticking timebomb of second charge
- poor interest rate means high payments

all add up to a risky proposition for you.

brit1234

slavinder wrote: »

Yes, we do qualify we earn 50k between us, we would be looking to sell at 5 year mark, if in that time the value decreases the govnmt absorb it

And if you don't sell the costs will rocket. These shared equity schemes are a scam, designed to tempt desperate and foolish people into overpaying. They are for the developers benefit to keep their profits/share price up, builders in work and not to get the buyer a good deal. Have you read the small print?

Take a look at the loan costs after 5 years:

After five years, both equity loans will be subject to a fee (collected from youon behalf of the Agency and house builder by the Post Sales HomeBuy Agent) of 1.75% per annum on the outstanding amount of the equity loans. This fee will increase each year by the increase (if any) in RPI plus 1%. This is illustrated on page 13.

http://www.bovishomes.co.uk/Downloads/FirstBuy-Buyers-Guide.pdf

The government and Bovis don't absorb all the negative equity, just the percentage on the loan, you are liable for all the rest and with such a small deposit on a overvalued newbuild that can be a lot.

As long as you have complied with all your obligations in the FirstBuy mortgage deeds, you will not be required to provide for any shortfall in the equity loan if you sell when values have fallen.

http://www.bovishomes.co.uk/Downloads/FirstBuy-Buyers-Guide.pdf

You really need to think this though hard, I think you will be mad to go ahead. Then you have all the many other restrictions.

Far better saving a deposit and renting. If you can't save a deposit you should really think if home ownership is right for you.

silverchair

I would be very wary about this sort of deal.
1) There doesn't seem to be much of an option to make a lower offer on the property if the builders are paying your deposit
2) What happens to your home in terms of the housing scheme if your OH is no longer in the teaching profession either by deciding to leave or being made redundant?
3) Is it a new build? They tend to lose value quite quickly as you are paying a premium to have brand new


I know it may seem a long time, but you should wait & save for your own deposit. If Brighton is too expensive (which it is for most people) then I suggest moving further afield & finding an area which is cheaper.

jimjames

slavinder wrote: »

207! not 270!! - Brighton - a 2 bed is around 200k - saving 20k would take years in that time we would have paid 30k in rent

I think maybe you should review these figures. If you are earning joint £50k and do not yet have a family then it **should** be possible to save £20k within 2 to 3 years obviously depending on your situation. You may want to visit the debt free boards here (I know you're not in debt but there are good ideas for saving) or Living Below Your Means board on Fool.co.uk to see ways that you can reduce outgoings to help save. It won't be easy to save but it is definitely worth doing.

If you have absolutely no savings at all currently then I would caution buying any property until you have some. When you start a family your finances will be even more stretched during the period on maternity pay and when you move in chances are some work will need doing and furniture etc needed. Even if not immediately there is the likelihood of some repair that would be needed or car needs replacing etc. Building a savings buffer is definitely worth doing first.

If you do already have savings then how much can you add to that per month to achieve your target? As mentioned above shared ownership can get your foot on the ladder but at a cost. To my mind it is only something that is being used to support high property prices.

kingstreet

Worth noting a 5% deposit would reduce the mortgage rate from 5.79% to 4.59%, trimming the payments and removing the need for such a long term.

For example - put down £10,350 deposit and get the lower rate. A 25 year term on a £155,250 mortgage would leave you paying £870 per month and over the five years you'd repay £18,300. With your initial deposit that's nearly £30k equity you would have in the house, assuming prices stay the same.

You'd also be £50 a month better off with the lower monthly payments.

slavinder

I'm assuming you are.

Having run this case through Mortgage Brain, I'm a bit more concerned than I was before.

You appear to be using a 35 year term to keep the monthly payments at £925 per month?

By doing so, you are reducing the amount of capital you are repaying to what I believe is a dangerous level to get the affordability which is obviously important.

You will borrow £165,600. By the end of year 5, your mortgage will have fallen by only £9,000 to £156,517. If there is no increase in the value of the property, you'll still have the £40k loan to pay off but only have equity of £9k. It's debatable whether you'd be able to move. Remortgaging would be impossible, so you'd have to find extra money to pay the interest on the loan from then onwards. Obviously the situation would be even worse if property values fall as then you'd have no equity at all, despite the enormous monthly payments and you'd still have to pay the interest on the loan as well.

I would counsel you against a "buy at all costs" approach. To summarise;-

- starting a family soon is de-stabilising income/expenditure
- very long term equals little repaid in early years
- premium price for newbuild means instant negative equity
- ticking timebomb of second charge
- poor interest rate means high payments

all add up to a risky proposition for you.[/QUOTE]

We're the "educational professionals"