Another New Build Mortgage Query

sm1979

I am looking for a bit of advice on the purchase of a new build property. I have been in talks with a builder that would be willing to do a part/ex on my existing property and are willing to help out with the deposit for the new property.
We have agreed a price for the part/ex but still looking at a solution on the deposit side. I would be able to put in 5%. The developer is willing to go down a shared equity route – they would contribute 10% of the purchase price, which would be paid back over 7 years.
I know of only two lenders that would offer a mortgage on shared equity basis with an LTV of 85%. I have had a look at the interest rates and my IFA has came back with a few KFIs – the NW has a decent rate of 4.29% but there are not always willing to lend and the Halifax had come back with a rate of 6.49% meaning a hefty monthly repayment.
My main issue with the above scenario I would have to pay a high repayment, plus still pay back the shared equity portion, which combined is a lot higher than a standard 85% LTV mortgage.
I have said this to the builder and he has proposed the following scenario; he would lend me the 10% as a loan, and he would not have a stake in the house, and I could repay this over 7years. This would allow me to look at 85% LTV mortgages with other lenders with better interest rates, eg NRAM. Basically it would be like to taking a loan from a 3rd party who would have no stake in the house. It wont be an incentive as I would eventually have to pay the money back, to make up the full asking price.
My question is this allowed by the banks? Are there any pitfalls legally with this kind of arrangement?
I haven’t committed any money at this stage; the builder is desperate to sell as he has already increased his part/ex offer by £8k and he is willing to drop the shared equity stake – my main concern is that the banks and their take on the arrangement.
Affordability wont be an issue as the mortgage repayment would be similar to my current rate (got a hit with a high rate in 2008) and I would be able to pay back the loan. I am not in a desperate rush, though would like to move and the new house does tick the boxes. It’s just the financial aspect that has me concerned. Any advice would be appreciated.

poppy10_2

Legally you'd have to declare the 10% loan as the source of your deposit. Most banks will do a runner as soon as they hear this. No chance, sorry. Tell the builder to drop his price - you hold all the cards, he is desperate. Don't get taken for a mug

sm1979

thanks poppy10 - i thought that would be the case. the guy has been trying for several weeks to get me to commit, but i wanted to have all the ducks in a row!! i am definitely not a mug

i think i will give the new property a wide body swerve for the moment. if i can sell my house I think I will rent until i have saved a bigger deposit, then go for a straight forward mortgage so it is mine 100%

the only good thing was the offer I managed to extract out of him :-) for my house, the rest of the deal sounds too cowboyish!! just wonder if he has gotten away with this before??

Thrugelmir

sm1979 wrote: »

the only good thing was the offer I managed to extract out of him :-) for my house,

You haven't. The price for the new build reflects the price offered for yours.

The builder is looking at the deal as a whole.