Homebuy Direct - Are the houses overvalued?

mcaville

Hi everyone,

My wife and I bought a property through the Homebuy Direct scheme in September 2010. It was valued at £195,000, but we bought it on roughly a 70:30 split, so only had to have a mortgage for £135,000. Unfortunately my wife and I are splitting up and we are having to sell the house. I had an informal chat with a local estate agent the other day who informed me that the current market value for my property would only be £170,000. Although the Homebuy Direct scheme means that this won't leave me in negative equity, it does mean that i say good bye to my deposit and any investment i have made to the property.

The estate agent also told me that this is normal with new builds, i.e that they always take at least 5 years before they start making a profit. If this is the case, then i feel my property was over-valued in the first place. In the same way that when driving a brand new car off the forcourt you stand to lose thousands off of the value, it seems as though the same thing happens with a new build. Is this everyone elses experience? If so, do I have any grounds to seek compensation for this?

One other question. In terms of the options that i have before me, they are as follows:

1. Wait until July 2012 (when early repayment period is over) and sell on the open market and lose my deposit
2. Try and sell now and lose another £5k as an early repayment fee
3. Stay in property and risk it being reposessed
4. Let it out without the Homebuy Agent or the bank becoming aware
5. Hand keys back to bank (is this even possible - especially when Homebuy have a 30% interest in the property?)

Is there anything else that I could do? bearing in mind that one of us cant afford to take the property on on our own, so we either get rid of it, or find a way to let it out so that it can pay for itself.

Any advice that anyone can give on this situation would be extremely helpful.

Martin

GDB2222

I'm so sorry to hear of your difficult position. Most new properties lose very, very approximately 20% when they become secondhand. Maybe more or less, depending on how well the buyer bargained. People using the Homebuy scheme were generally unable to bargain, so they'll have been hit hardest.

Did the agent say that you'd achieve £170k or that you should market at that figure? That makes a LOT of difference to your decision-taking.

Handing the keys in does not work. The lenders will still hound you for any shortfall. So, options 3 and 5 are essentially the same.

Option 4 just delays the pain, unless by some miracle house prices start going up again rather fast.

Some divorcing couples do end up living under the same roof, as that's the only way they can afford to live. If you can do that until July 2012, that will at least save you the early repayment charge.

How about one of you living there and taking a lodger?

I'm hoping that you have more than one bedroom.

mcaville

GDB2222 wrote: »

I'm so sorry to hear of your difficult position. Most new properties lose very, very approximately 20% when they become secondhand. Maybe more or less, depending on how well the buyer bargained. People using the Homebuy scheme were generally unable to bargain, so they'll have been hit hardest.

Did the agent say that you'd achieve £170k or that you should market at that figure? That makes a LOT of difference to your decision-taking.

Handing the keys in does not work. The lenders will still hound you for any shortfall. So, options 3 and 5 are essentially the same.

Option 4 just delays the pain, unless by some miracle house prices start going up again rather fast.

Some divorcing couples do end up living under the same roof, as that's the only way they can afford to live. If you can do that until July 2012, that will at least save you the early repayment charge.

How about one of you living there and taking a lodger?

I'm hoping that you have more than one bedroom.

Fortunately the divorce is very amicable. My wife has moved out of the property, but she is still contributing towards the mortgage. The plan was to stay in it until July 2012, but when i found out there would be no financial gain in doing this, its made me frustrated about continuing to pay into something that wont pay me anything back. And what will be more frustrating is paying an estate agent and a solicitor to sell it for me.

I just feel that the government have ripped me off. If all new builds drop in price by approximately 20%, then surely its a bit of a scam. The only people who can take advantage of this is those who can afford to stair case during this period. Also, if i was a 70% share holder in a company, i would have the controlling share, and therefore i would make the decisions about what i can and cant do. In this arrangement, Homebuy (who actually only have a 15% interest - the developer has the other 15%) seem to call the shots. They say what i can and can't do.

Seriously, if anyone else is thinking about buying on one of these schemes, think long and hard. It might seem like an affordable way to buy a nice new house, but it only is if you plan on staying in that house for the next 10 years. Otherwise it feels like you are being held hostage!!!

RobertoMoir

mcaville wrote: »

I just feel that the government have ripped me off. If all new builds drop in price by approximately 20%, then surely its a bit of a scam. The only people who can take advantage of this is those who can afford to stair case during this period.

I'm not sure I'd quite describe it as a scam myself, though I am sure that i'd be reluctant to buy under that kind of scheme myself. These schemes only makes sense if a number of assumptions come true and they paint these in a very positive light. You might say this is where/why they are a scam and you might even have a point but people should do their own research before buying something as large as a house.

Same thing for the price really. You're paying a premium firstly because of the fact its new - similar to the premium for a brand new car as you say. You're also paying a premium (or perhaps I should say, less able to negotiate the price down in a normal manner) because of the scheme you're buying under. It limits your options, yes, but it makes home buying possible for people who otherwise might not be able to do so... which is a double-edged sword as you've now noticed.

Also, if i was a 70% share holder in a company, i would have the controlling share, and therefore i would make the decisions about what i can and cant do. In this arrangement, Homebuy (who actually only have a 15% interest - the developer has the other 15%) seem to call the shots. They say what i can and can't do.

Well if you were a large shareholder in a company, you'd know that the company has obligations to *all* its shareholders. You're right to feel its a bit of a stitch up, but homebuy and the developer would call it "protecting their investment" and from their point of view they'd have a point.

Seriously, if anyone else is thinking about buying on one of these schemes, think long and hard. It might seem like an affordable way to buy a nice new house, but it only is if you plan on staying in that house for the next 10 years. Otherwise it feels like you are being held hostage!!!

Absolutely agree with this.

MobileSaver

mcaville wrote: »

The estate agent also told me that this is normal with new builds, i.e that they always take at least 5 years before they start making a profit. If this is the case, then i feel my property was over-valued in the first place. In the same way that when driving a brand new car off the forcourt you stand to lose thousands off of the value, it seems as though the same thing happens with a new build. Is this everyone elses experience?

Yes, it is exactly the same as buying a brand new car... when you come to sell it your buyer is no longer buying a brand new shiny house with brand new shiny appliances etc.

What made you think someone a year down the road would pay the same price for a second-hand house that you paid for a brand new one?

firsttimetom

It is a scam - all these things are designed to do is keep prices artifically high, and profits for the builders up, and it is our taxes that are used to do it. If you can only afford 70% of something, then you cannot afford it, and the governemnt should not be funding the difference - the market would bring the price down anyway.

OP, I am sorry to hear about how it has panned out for you - unfortunately this will not be the last story we hear like this on these boards.

I assume that the £195,000 was the asking price for the property, as these schemes allow for very little negotiation. I would go to https://www.houseprices.co.uk or Zoopla and see what your neighbours paid for the same properties. I would not be surprised to see some in the £165,000 - £175,000 bracket as people buying without the schemes can get some substantial discounts. We looked around a 3 bed, 3 storey new build that was on the market for £179k, Oiginally at £179k. We had only made it up one flight of stairs before the sales lady told us that they would accept an offer of £150k - This was in 2008 though and house prices were plummeting and looked like they would continue to do so, and looked over priced even at £150k, but it goes to show there are substantial discounts to be had on new builds - which will almost certianly not be available on a Homebuyers Scheme.