Shared Equity Mortgage help (Bovis Jumpstart)

jellytot83

Hi guys,

Hoping someone can help de-confuse me please...

My fiancee and I bought a new property from Bovis in September 2008.
We paid £195,000 and bought it with a Jumpstart shared equity scheme, where the builder contributes 25% of the property value as a deposit (effectively). For the first 5 years you pay them nothing, then you pay them 3% interest afterwards or sell and give them 25%.

Now, I'm getting worried as property values have dropped in this area and my property is probably worth £185k now.

What are my options next year when my 5 years comes up?

I think they are:

1) Sell the property, negative equity of not, and the builders take their 25%. We've paid back £5k or so of our mortgage capital, so this would essentially leave us with £7,500 negative equity - meaning we'd need to raise this sort of money to break even.

2) Keep the property and pay the builder their interest. Bearing in mind this is 3% on £48,750 (I presume their equity loan amount doesn't adjust due to market value) the monthly repayment > £850 (!)

3) Magic solution from you guys...??

So, I guess my questions are:

- Do my options 1 and 2 look 'right' enough to you?
- Can you give me an option 3 - which is tastier??

Thank you so much in advance!!

Jellytot

Thrugelmir

What was your plan at the outset?

jellytot83

Thanks for the reply... Plan or ambition was to see value of property rise, and use this equity to bolster savings and act as 5% for the second property. I know the market has shifted but we bought at the turn of it. My fianc!e had made 17k in one year on his first flat in 2005 and I naively assumed we would achieve similar results

Thrugelmir

You've still a further 5 years before you have to repay the £48,750.

In the meantime at 3% interest. The additional monthly outgoing is £122.

So you've time to make inroads in your mortgage debt, and build some equity in the property. Before making a definative decision. Whether to refinance the debt or sell.

jellytot83

Thanks for your reply...

I must have misunderstood the conditions of the equity loan then ...

So are you saying that the £48k retained by Bovis is interest only (at our risk) for the last 5 years?

I thought you'd have to treat it like a traditional loan eg £48k with 3% apr = £860 ish

Thanks
JT

Idiophreak

jellytot83 wrote: »

Thanks for your reply...

I must have misunderstood the conditions of the equity loan then ...

So are you saying that the £48k retained by Bovis is interest only (at our risk) for the last 5 years?

I thought you'd have to treat it like a traditional loan eg £48k with 3% apr = £860 ish

Thanks
JT

"for the second five years there is an annual interest rate fixed at just 3%, payable monthly, on the original sum provided by Bovis Homes"...So the £122 figure is about right...

Idiophreak

I'd also note that your maths for option 1 is a little off.

Property's down 10k, but so you're only responsible for 7.5k of that...and you've got 5k of equity...So if you sold up, you'd only be 2.5k out of pocket...

jamesd

You probably also have the option to buy them out without selling. The ideal time to do that is when property prices are down because their 25% portion probably does decrease in value as well. So you can probably buy that 25% for less than it would have cost you originally.

Dropping prices are a good thing for shared equity mortgage holders who are looking to buy the rest of the equity, then hope to profit on the eventual upturn. If they can afford to wait for the upturn.

Paying them 3% is cheap enough as what is effectively an interest only mortgage rate. I wouldn't even want to repay that, except to exploit possible gains in the property value.

Idiophreak

jamesd wrote: »

You probably also have the option to buy them out without selling.

It doesn't seem the OP has the money to buy them out - hence the OP. As they're in negative equity, their chances of refinancing to do this are pretty much zero.

jellytot83

Thanks so far for replies.

Our preference would be to move sooner - the property is lovely but a flat is a flat. We want a garden etc so are looking to move.

I guess it is a good point about the negative equity meaning we could buy out Bovis on the cheap and then make more money in the long term, but we want a shorter term solution.

So the fact that we're in negative equity means that Bovis are too - so they're sharing in the pain.

If we sell and it is 'only' £2.5k we could finance that (but would need our new deposit etc for property 2)