Newbuy scheme question..

downs523

Say you took up this scheme and then wanted to sell in say 5 years... What happens to the % the government and house builder paid for/ put a side?

DannyboyMidlands

Nothing really. That's just a side deal between the government, housebuilder and the lender.

Personally I'd be very wary of a scheme that is such a bad risk that the developer has to pay the lender to persuade them to lend to the buyer. It has scam written all over it in my opinion. The biggest problem with moving in 5 years time will be the negative equity.

Also, considering the only way the developer can shift these things is a newbuy scheme, who are you going to sell to anyway?

kingstreet

The payments in question go into a fund to cover repossessions, so the lenders will get a slice of that in the event of defaults taking place.

As the owner of the property, you can sell whenever you want, as long as you can get a high enough price.

downs523

If some one sold then would you only get 95 or 90% of the sale which would be minus the 5-10% the builder/government did

kingstreet

No. You buy 100% of the property using a 5% deposit and 95% mortgage. The money the government and builders put into the fund isn't related to you in any way. It's simply a contribution to the fund for repossessions for the whole scheme.

Your future sale price isn't affected. This isn't like shared ownership, where you only buy part of the property, or shared equity, where you have a loan on top of your deposit and mortgage.

DannyboyMidlands

No. For you to buy you need to save up and pay a deposit of 5% or 10% and borrow the other 90% or 95%. Just like a normal transaction. So when you come to sell you pay back the lender whatever you borrowed.

The government/builder have a seperate arrangement with the lender to persuade them to lend you 90% or 95% which they would otherwise be reluctant to do.

brit1234

It's a scam scheme, avoid. It is also in danger of collapse with mortgage rates being far higher than the builders wanted. The builders claim the mortgages are unaffordable.

https://forums.moneysavingexpert.com/discussion/3922305

Does the scheme protect me?

No. The scheme does not change or reduce your personal responsibility in any way.

The lender will still assess you to see if they think you will be able to afford the repayments from your income.

You are responsible for paying your mortgage under the NewBuy scheme in exactly the same way as any other mortgage holder.

And, if the lender has to repossess the property and sell it, you would be responsible for paying any shortfall between the amount you owe to the lender and the amount the lender sells the property for.

What should I consider when taking out a mortgage under the scheme?

Buying a property with a mortgage under the NewBuy scheme is likely to be more suitable for people who expect to stay in the property for a number of years rather than those who plan to move soon.

If you take out a mortgage on a newly-built property that represents a high percentage of the value of the property – between 90% to 95% in this case - there are some things you should consider. Some new-build properties include an extra premium on the sale price that can reduce as soon as someone moves into the property. This potential reduction in the value of the property is an important factor you should consider when buying a new home using a higher LTV loan. If house prices fall, you may not have enough money from selling the property to repay the mortgage.

If the amount you owe under your mortgage is greater than the value of your home, this is called ‘negative equity’ and could make it difficult to move or remortgage unless you can meet the shortfall from savings or other sources. However, this is a risk of high loan-to-value borrowing (where you borrow a large percentage of the value of the property), not of the NewBuy scheme itself.

You may be able to borrow more (in other words, get a further advance) if your lender agrees, but at this point the scheme would not apply to you, and that may mean the lender will not be prepared to lend.
You should get financial advice if you are in any doubt about whether a low-deposit mortgage is right for your circumstances.

http://www.cml.org.uk/cml/consumers/newbuy

FTBFun

This is not a scam scheme - admittedly it's not a very good investment IMO but it's certainly not a scam. You actually get something for starters!

brit1234

FTBFun wrote: »

This is not a scam scheme - admittedly it's not a very good investment IMO but it's certainly not a scam. You actually get something for starters!

Yes stuck in instant negative equity. You get something from loan sharks but that doesn't mean it is a good deal.

downs523

Thanks for the information, this is only an option for me, I'm not dead set on it. My next property I plan to stay in for 5yrs+ and if I did this I would be placing 10% not the 5% so hopefully this would avoid the neg equity trap!

FTBFun

brit1234 wrote: »

Yes stuck in instant negative equity. You get something from loan sharks but that doesn't mean it is a good deal.

You get that sort of with all new builds though.

Still doesn't make it a scam.