Frustrated First Time Buyer-Is First Buy Worth it?

lindsaygalaxy

If you are planning in having a family think about the reduced income you are going to have, even if you return to work you will then have childcare costs, so unlikely you will be able to keep saving £800 a month.

If_I_was_a_rich_girl...

lindsaygalaxy wrote: »

If you are planning in having a family think about the reduced income you are going to have, even if you return to work you will then have childcare costs, so unlikely you will be able to keep saving £800 a month.

The £800 was between me and my husband but that's a very good point Lindsay, and I have no idea of the various costs associated with bringing up a child, bit of a difficult thing to work out I guess, I suspect it might be a shock! I would need to return to work as soon as possible after (sounds awful but would need the money) and I bet childcare isn't cheap out our way either! Hmm still a lot of thinking to do..

brit1234

pioneer22 wrote: »

Ignore Brit there won't be a house price crash any time soon, and they are not a scam. But you can get good discounts on them, only do it if you are there long term.

Pioneer house prices are falling now, haven't you noticed and that is with interest rates at 0.5% What happens when rates go up?

You are encouraging someone to overpay for a property and in addition take out a equity loan ontop of a mortgage when her partner says he wants to save for 2 years and get a 25% deposit. I know which I believe is the most sensible option yet you are encouraging them to go for the irresponsible option.

Even the Law society says these schemes are dangerous. They only benefit the builder (protect their artificial land bank values).

What do you say to the original poster when they have to pay back their equity loan, they are in negative equity and interest rates are higher?

Save that deposit and thus avoid being one of the many shared equity victims that come on here. Shared equity is a scam, no doubt about it.

If_I_was_a_rich_girl...

What do you say to the original poster when they have to pay back their equity loan, they are in negative equity and interest rates are higher?

Brit I looked into this as that was something that worried me and here is what I found on the government's own website:

"The loan is called an equity loan because its value changes based on how much your home is worth. This means the amount you owe will rise and fall with the value of your home .... If your home has dropped in value, there may not be enough money left after your mortgage costs to pay back the equity loan. If this happens, you won’t have to pay back the rest of the money owed on the equity loan"

This sounds to me as though the government are gambling on property prices going up as otherwise they could be paying off a lot of peoples equity loans when they decide to sell?!

If I have understood this correctly then essentially they are protecting you from negative equity on the 20% equity loan unless any one else can explain this? :beer:

Brit it would be three years at least until we can save a 25% deposit and that doesn't include for fees or stamp duty at 1%/ moving in costs etc by which time we will have paid nearly £22,000 in rent assuming it stays at present amount. That is unless property prices decrease dramatically as you say.

Wickedkitten

If_I_was_a_rich_girl... wrote: »

Brit I looked into this as that was something that worried me and here is what I found on the government's own website:

This sounds to me as though the government are gambling on property prices going up as otherwise they could be paying off a lot of peoples equity loans when they decide to sell?!

If I have understood this correctly then essentially they are protecting you from negative equity on the 20% equity loan unless any one else can explain this? :beer:

Brit it would be three years at least until we can save a 25% deposit and that doesn't include for fees or stamp duty at 1%/ moving in costs etc by which time we will have paid nearly £22,000 in rent assuming it stays at present amount. That is unless property prices decrease dramatically as you say.

Look at it this way,

In 3 years you will have paid 22k in rent but you will have a 25% deposit, so assuming you are buying a house that is 200k, you have a mortgage of £150,000.

You buy a First Buy house now, for £235,000 with 20% equity loan minus your 4% you have a Mortgage of £180,480

Already you are paying 30,000 more and lets not forget you still have £47,000 as an equity loan on top of that.

Now at 5.99 percent on a 180,480 mortgage in your first two years, you are going to have paid over £20k just in interest which is just as much dead money as some people think rent is, and only about 6.5k max in capital.



Now obviously the interest rate could very well be different in 3 years, but certainly now with a 75% LTV, you would be able to get a 2 year fix at 2.45% from Leeds BS which on a mortgage of £150,000 would mean that you are only paying about 7k in interest during the first two years, and also you will have paid 9k back in capital.




As far as negative equity goes, if you were to sell the house in 2 years (not saying you would, just using it as an illustration) if the First Buy house goes from say 235k, down to 200k, which could very well happen as its a new build, then your liability does decrease, but you would still owe them their 20% of 200k which would come off the top, and the 160,000 left wouldn't cover your mortgage of £173,500.

In the same situation happened where the other house dropped by 35k, you would still be fine and have equity because you have a 25% buffer

If_I_was_a_rich_girl...

If you were to sell the house in 2 years (not saying you would, just using it as an illustration) if the First Buy house goes from say 235k, down to 200k, which could very well happen as its a new build, then your liability does decrease, but you would still owe them their 20% of 200k which would come off the top, and the 160,000 left wouldn't cover your mortgage of £173,500

Thanks for your post wicked kitten -wow that is a lot to get my head around! :eek: I am dying to know where did you find a such a sophisticated mortgage calculater?

As for the 20% equity loan coming off the top the way I read it was that if we were to sell, the sales price goes to pay for the mortgage FIRST then if there is not enough to pay the equity loan it is effectively written off which admittedly doesn't seem plausable, have I got this wrong? It says on directgov

"The money that the buyer pays for your home is first used to pay off your mortgage, then the equity loan. If your home has dropped in value, there may not be enough money left after your mortgage costs to pay back the equity loan. If this happens, you won’t have to pay back the rest of the money owed on the equity loan"

If I am looking at it correctly a seller buys the home for £200,000 after 2 years which pays off the rest of the mortgage which in your example is £173,500 leaving over £26,500 to pay off part of the equity loan, therefore the remaining £20500 of the equity loan (assuming no payments made) would be written off? Also am I correct in thinking that there would therefore be a tiny bit of equity withheld on the small amount of capital on the mortgage we had paid off?

If this is correct then in reality:
A) we wouldn't sell (assuming not forced to sell ) if in negative equity- would wait it out until the house prices (hopefully) rose again and
The homebuy agent representing the government probably wouldn't let us sell as they have to approve future sales whilst the equity loan is in force.
C) We are not likely to sell after only 2 years anyway so by the time we do sell hopefully we will have paid off the equity loan or a sizeable chunk of it.
D) Spoke to New Homes group today to find out some more and with a 5% instead of 4% deposit we could get a 2 yr fixed rate via Halifax with monthly mortgage payments of £934 - I think this works out as an interest rate of something like 4.25% doesn't it? After that I am not sure, think it goes onto a standard variable rate - perhaps this looks a little better?

All this is making my head spin sooo confused!

Wickedkitten

The ammortisation calculator can be found athttp://www.calculator.net/mortgage-calculator-uk.html

You should have a look at the actual FirstBuy pdf really, specifically page 11

http://www.homesandcommunities.co.uk/sites/default/files/our-work/firstbuy-buyers-guide-040811.pdf

What happens if property values fall? Will I have to repay the full amount of FirstBuy assistance or just a percentage of the total sale proceeds? When you sell your home, the FirstBuy equity loan documents commit you to repay a percentage of the market value equal to the percentage contribution of assistance received.

This means if the market value of your property falls below the level at which it was first purchased, you will repay less than the original amount the Agency and the house builder contributed to the original purchase.

You must always show that the proposed sale value is at the prevailing market value before going ahead. The Post Sales HomeBuy Agent must approve the sale before allowing the second charges to be released.

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.
If you do not comply with the terms of the FirstBuy mortgage deeds, the Agency and the house builder will seek to recover all the money they are owed. Your solicitor will explain the FirstBuy mortgage deeds to you before the property is purchased.

If_I_was_a_rich_girl...

You should have a look at the actual FirstBuy pdf really, specifically page 11

Thanks for the calculator So looking at the document I was right except I didn't allow for the additional reduction in value of the equity loan but used the original amount? So instead of 47000 equity loan in the example earlier it would become 20% of 200,000 so £40,000?

So valued at 200k after 2 years, the outstanding amount on the original £180,480 mortgage is £173,500, combined with equity loan of 40,000K is £213,500 so we are technically we are in negative equity as 173,500 mortgage gets paid off BUT can only pay £26500 towards equity loan leaving a short fall of £13500 , however if the house sale at proven market value won't cover all of the equity loan the rest has to be written off. At least I hope that's correct. Therefore we have effectively rented a nice property for two years for 327881.57 not including initial 4% deposit of £9400 =£37281.57= 1553.40 a month.

In the other example of 200K property with saved deposit £50,000 and take out 75%LTV of £150,000 sell after 2 years at £165000, outstanding amount on loan is £141,082.71 we have £23,917.29 equity still or about 15% of the total property value? Is it really achievable to get the low interest rate quoted for a first time buyer of 2.45% at present? (hopefully would still be same in 3 years time but I reckon may go up! :huh: )

I really wish I had paid more attention in economics!

So now using the real example New Homes have quotes for 4.25% 75% LTV mortgage with 20% equity loan and 5% deposit

Property price 230K drops to 200K after 2 years when sell, still owe £164,409.89 plus £40000 for equity loan so still in negative equity by £4409.89.

But what if: Price is 200K after 5 years and have paid off all equity loan by which time we should have £150,911.85 outstanding on mortgage (of course this all assumes rate stays at same at 4.25 which is unlikely); then would still have £49088.15 equity. If we hadn't paid off any of the loan we would have £9088.15 left.

I think what I am saying is that as long as we pay off the equity loan within 5 years or so and don't sell until after then won't we be in the same position as if we already had the 25% upfront as the rate will have changed by then anyway to regular variable rate or we could remortgage? It's just that we got to live in our property whilst we saved the additional 20% up? Granted the price of the property will likely go down as often happens on new builds but this would have happened anyway whether or not the 25% initially put down was all our own, the non first buy properties of the same type look exactly the same and are the same prices yet seem to be shifting? I suppose that higher interest rates are the price you pay for getting in early? It's just about possible in the longer term that the price could also go up then we would be better off (assuming paid off equity loan) and still owning our own property?

If only we could put all the different possible future scenarios into a computer and it works out the best possible option for you at that time!!

Ok so what I really am asking for is a crystal ball, but then I guess I would just look at the next euromillions numbers :rotfl:

louisa_84

G_M wrote: »

Trouble with a new build is it's like buying a brand new car. As you drive it off the forecourt it drops in value buy 20-25%.

'cos it's no longer 'new'.

Houses on the estate i live on, 12 months after being finished, have sold for more than originally bought for. Only 2 have gone up for sale mind, but still, its not correct to say all new builds drop in value, depends how sought after the area is i expect.

pioneer22

Brit if you repay the mortgage but don't replay the equity loan how would they fall into negative equity?